FOR-PROFIT VS. NOT-FOR-PROFIT SENIOR LIVING COMMUNITIES

If you’ve searched “not-for-profit vs for-profit senior living communities” on Google, then you’ll know the search results are filled with posts from blogs on not-for-profits’ websites. You also may believe that not-for-profits, or nonprofits, are more genuine senior living communities. Be careful, the argument is not as simple as the nonprofits make it seem. Here’s why:

About 80 percent of senior residential care facilities are private and for-profit1. To outline the differences between for-profit and not-for-profit senior living communities, let’s quickly highlight some facts about each:

For-profits

  • Can generate positive net income, which is profit after operating expenses, interest expense, and taxes
  • Communities can be large or small
  • Can have government subsidy programs
  • Can have Medicare and Medicaid beds
  • Can be affiliated with not-for-profit hospitals
  • Can host religious ceremonies or have a large fraternal presence
  • May or may not remove residents from their communities for delinquent payments

Not-for-profits

  • Cannot generate net income, which is profit after operating expenses, interest expenses, and taxes
  • Communities can be large or small
  • Can have government subsidy programs
  • Can have Medicare and Medicaid beds
  • Can be affiliated with not-for-profit hospitals
  • Generally affiliated with a faith or fraternal organization that is mission driven
  • May or may not remove residents from their communities for delinquent payments

The major difference between for-profit and not-for-profit communities is that for-profits can generate positive net income. A nonprofit community will try to persuade you to think that this is a bad thing. A nonprofit might say, all-things-equal, a for-profit community will cut costs to be able to generate a profit to pass along to shareholders. That may sound good in theory, but it’s not a practical way to manage a community for long-term success.

Let’s say there are two neighboring communities that are identical, except one is a for-profit and the other is a not-for-profit. If the for-profit reduces its number of caregivers and then pays investors the savings, then which community would prospective residents choose? Under an efficient market, they would choose the not-for-profit community, because the caregiver-to-resident ratio is better. How is the for-profit going to respond? In this scenario, the market dynamic indicated that prospective residents are sensitive to the caregiver-to-resident ratio. The for-profit may find new investors or encourage its current owners and shareholders to invest back into the community. The for-profit may generate enough funds to hire even more caregivers than the nonprofit community. As a result, the for-profit begins operating a better business and winning new prospective residents.

This doesn’t mean that for-profits are better because they can attract capital more easily than non-for-profit communities. Investors only want their community to be marginally better or to be perceived as better than the competition so that when a prospect comes, he or she chooses the investor’s community. A perceived-to-be-better-community may have allocated more funds to marketing, rather than hiring an additional caregivers. So don’t be tricked into thinking a community is nice because its handouts are plated in gold. Instead, analyze each community based on a predefined set of criteria.

Also, don’t let generalizations sway you to consider only one legal structure. For example, if you want to find a community that has a large veteran population, it is likely that you’ll find one that is a not-for-profit, but don’t exclude for-profit communities from your search. Some for-profit communities have large veteran populations too. The same thing would apply if you’re searching for a community that has many residents of a particular faith. While you are likely to find a not-for-profit that is affiliated with your loved one’s religion, there are also for-profit communities that have certain concentrations of residents of the same religion too.

Unless the cause of the nonprofit community means a lot to you or your loved one, don’t let the basis of your decision ride on the community’s legal structure. Instead, we advise that you ask your loved one what he or she wants, or ask yourself what he or she wants. Create a list, and then find a community that fits your criteria. If you’re having trouble creating a list, ask a senior advisor. He or she will be able to help you brainstorm some important lifestyle factors to consider, and then show you a few communities that best meet your criteria.

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