Top 5 Trends Shaping the Senior Living and Care Industry in 2024

Key insights

• Although the economics and regulations in the SNF space can vary when comparing state and national trends, it is expected that the positive trajectory of older population occupancy will continue through 2024.
• The industry is working to enhance profits by increasing revenues, increasing rates, and, where feasible, realigning operating costs.
• People are optimistic about the rebound in M&A activity in 2024, with acquisitions, integrations, and collaborations expected to increase.
• Senior living organizations are diversifying their revenue streams to reduce reliance on traditional revenue sources and create new revenue streams to withstand market shocks.

1. Positive occupancy momentum and demand

In 2023, there was a positive increase in occupancy across all venues in the senior living and care industry, and this upward trend is expected to continue into 2024.

Senior living

Traditional senior living – independent living (IL), assisted living (AL), and memory care – experienced sustained quarterly occupancy growth in 2022 and 2023. Many expect to reach pre-pandemic occupancy levels by 2024 as assisted living and memory care are set to be more acuity. Memory care occupancy growth is outpacing independent living.

The positive growth in senior residential occupancy is largely attributed to the lack of new construction over the past three years, driven by challenges in supply chain, labor, capital markets, and interest rates. The slowdown in new construction since 2021, coupled with increased demand and limited new supply, is expected to support the continued positive absorption of inventories.

Skilled Care Facility (SNF)

Occupancy rates for SNFs continued to grow in 2023, but when comparing state and national trends, the economics and regulations in the SNF space made a difference. SNF beds (supply) continue to decrease across the country. It's crucial to understand local market trends.

Family health

Driven by consumer demand and technical support, home health continues to show an impressive rate of growth. Many organizations are expanding their focus on home health, and existing home care companies are maturing with the transition between home healthcare and home care.

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According to the U.S. Census Bureau, the population aged 85 and older is expected to more than double, from 6.7 million in 2020 to 14.4 million in 2040 and 18.6 million by 2050. For seniors aged 85 and older, the national median annual growth rate is 1.5% from 2022 to 2028, and it is projected that by 2028, there will be an increase of 622,000 people aged 85 and older nationwide.

This demand is not just driven by acuity, as many older adults are actively pursuing physical, mental, and social well-being – which opens up a wider range of opportunities for the industry. The compounding effect of an economic slowdown and declining inventories further highlights the transformative need for aged care and health in the future.

2. Dynamic economic environment

In 2024, senior living and care operators will focus on improving profit margins. This involves a delicate balance between adjusting the size of interest rates and strengthening the portfolio census. The industry is struggling to enhance profits by increasing revenues, optimizing rates, and realigning operating costs where feasible. Strategic redesign options are also being explored to improve profits.

• Fees: Fees are expected to remain under pressure in 2024. Inflationary pressures, particularly personnel-related expenses, are expected to persist, which will impact margins and overall financial performance. Challenges related to interest rates, inflation and capital market impacts will remain a pressure point. The complexities associated with workforce, technology, and operational innovation will require ongoing investment and adaptation.
• Revenue:
• Senior living: Since the beginning of 2023, rental rates for independent living, assisted living, and memory care have been increasing at near-all-time highs. Memory care saw the largest increase. Senior Living is expected to continue to raise interest rates to offset ongoing pressures from rising labor costs and a bothersome inflationary environment.
• Skilled nursing: The states in which SNFs operate can have a significant impact on revenue due to changes to state Medicaid payments and Medicare advantage programs. Nationally, the SNF payer portfolio includes about 62 percent Medicaid and 10 percent traditional pay-per-service Medicare. Medicare advantages continue to grow, showing differences between state and county levels. In response to fluctuations in operating expenses and regulatory requirements, the national Medicaid payment system is evolving across the country.
• Family Health: As with the SNF, despite the 3% increase in Medicare rates in the 2024 payment rules, the decline in reimbursement also poses challenges. Under the same rule, the gains were offset by a 2.89% decrease in the national standardized 30-day payout rate, resulting in an increase of only 0.8% in the projected payout compared to 2023. Amid inflation and rising labor costs, this small increase will affect many home health facilities.

capital market

The current Fed tightening cycle (February 2022-present) is the most aggressive tightening cycle in the last 40 years. In this tightening cycle, the Fed raised the federal funds rate by 525 basis points in 17 months, while in 1988-89 they raised the federal funds rate by 325 basis points in 13 months, and in 2004-06 they raised it by 425 basis points for more than 25 months. There is still uncertainty about the path of interest rates in 2024 as December 2023 inflation data came in slightly higher than expected and showed a slight increase.

The upcoming debt maturity wall is expected to impact the senior living and care industry in 2024. With billions of loans maturing in the next two years, the need for recapitalization financing is enormous. Borrowers with adjustable-rate debt often face insurmountable debt servicing costs, and the need for recapitalization financing can be challenging, but conversely, it can be an opportunity for borrowers who are well-capitalized and looking for acquisition opportunities.

For those looking to execute deals in 2024, due diligence, risk testing, and strategic capital allocation will be key. Debt repayment coverage will continue to be a potential stress point for many. Be proactive and keep lenders and investors informed.

3. M&A activity will increase in the future

The decline in senior living and care deals in 2023 was attributed to economic turmoil, uncertainty, high interest rates, inflation, and capital market challenges, as well as selective trading approaches. Despite the challenges, there is optimism about the rebound in mergers and acquisitions (M&A) activity in 2024, with acquisitions, integrations, and partnerships expected to increase.

The industry is adapting to the changing economic landscape, with a focus on regional density, strategic capital redistribution, resident-centric models, technology integration, and overall health. These shifts are reshaping senior living communities, defining the market in 2024.

The expectation of consolidation in 2024 stems from the strengthening of the regulatory environment, the complexity of the revenue cycle, and the need for investment in technology and labor. Home Care is also expected to see more active M&A activity this year, with high-profile players entering the market and private equity investment also becoming more active.

4. Workforce: A constant pressure point

Workforce-related issues are expected to continue to be a common headwind in the senior living and care industry through 2024. These challenges – including staffing shortages, wage increases, and the need to pass on personnel-related expenses to consumers – have persisted and are expected to continue throughout the year.

These workforce issues have been a top concern for senior living and care providers, and the industry's commitment to addressing them by reducing turnover and improving the overall experience of the workforce is seen as an investment that will ultimately pay dividends.

There are also ongoing challenges in reducing or eliminating expensive and frequently used contract care labor. Although contract worker usage peaked in the fourth quarter of 2022 and slowly declined in 2023, contract care usage remains above pre-pandemic (2020) levels.

In addition, the proposed federal nursing home staffing directive is expected to be the top challenge if/once finalized, as the SNF industry will need to hire approximately 102,000 additional full-time employees at an estimated annual cost of $6.8 billion.

5. Proven vertical growth, health and wellness products

In the evolving landscape of the senior living and care industry, the focus on health and solutions is in focus as consumers prioritize health and lifestyle improvements. This transformation provides a strategic opportunity for organizations to enhance their value proposition in healthcare and wellness. The economic environment has provided a catalyst for some organizations to adopt innovative approaches to revenue growth and market impact, emphasizing greater involvement in the health and wellness ecosystem around the community.

As the cost of expanding through physical locations continues to increase, people are starting to grow vertically by actively participating in the health and wellness ecosystem. Due to the ongoing pressure on capital markets and the evolving business economy, this approach is gaining traction, challenging traditional approaches to growth.

Senior living organizations are increasingly diversifying their revenue streams to adapt to changing circumstances and meet the changing needs of consumers. This diversification is driven by a number of factors, including the need to reduce reliance on traditional revenue streams such as occupancy and rates, and to create new revenue streams that can withstand market shocks. The diversification trend began before the pandemic, but COVID-19 has further highlighted the risks of tying income almost entirely to the census.

As a result, providers recognize the importance of investing in new service lines and ancillary services to future-proof and serve tomorrow's consumers. This shift is also a response to the changing preferences of consumers, who are increasingly seeking more integrated and diverse health, lifestyle and care options.

The industry is more focused on the next generation of consumers, and suppliers are strategizing how to compete and capture market share post-pandemic. This includes becoming more complex in terms of processing data, information, and systems, as well as participating in payment models that support value-based reimbursement frameworks.

The move to diversify income is also a response to the rise of the active adult/age-in-place mix and the fact that senior living is increasingly becoming a health, lifestyle and active care industry. As a result, income diversification is a top trend and priority for senior care providers in 2024 as they seek to build more resilient and sustainable business models.

Value-based care is also at the top of the Centers for Medicare & Medicaid Services, with the goal of including all Medicare beneficiaries in accountable care relationships by 2023 and 50% of Medicare Advantage beneficiaries by 2025, a goal that has been exceeded by 2023. The entire senior living and care industry is aligning with this focus, integrating physicians, and adopting risk-based payment schemes.

Physicians are moving to payment systems related to managing health care costs within budget allowances, marking a departure from the traditional pay-per-service model. This trend will not only impact operational strategies, but will also shape the financial landscape of senior living and care companies in 2024 and beyond.