A preliminary report from St. Louis-based Management Performance Associates determined that there is sufficient demand for a dementia program in McHenry County.
But to make such a facility financially feasible as an expansion to the Valley Hi Nursing Home, there must be broad marketing efforts beyond local ZIP codes and at least 25 beds for potential residents, according to the firm’s findings.
MPA representative Scott Gima provided an update to the firm’s findings during Thursday’s McHenry County Public Health and Community Services Committee meeting.
The original scope of the expansion was 20 beds. However, Gima said in a letter to Valley Hi Administrator Tom Annarella and McHenry County Administrator Peter Austin that 25 beds will offer more financial flexibility if the Valley Hi expansion is unable to maintain a 90% capacity.
Gima said that a larger project imposes more risks, the greatest of which is price sensitivity as the nursing home competes with existing markets.
Annarella said there is a strong concern that the home can gather the necessary staffing to support so many beds.
“It is clearly not a case of where if you built it, necessarily they will come,” Gima said.
A 20-bed expansion of private rooms with 140 square feet a bed was estimated to cost about $7.85 million, based on a construction cost of $350 a square foot this year and an adjusted cost of $382 a square foot three years from now, according to the firm’s findings.
If a 25-bed expansion was built, it would cost about $9.3 million. A 30-bed facility would cost about $10.2 million, according to MPA’s estimates.
Assuming a 90% occupancy, Gima estimated that the net income from a 20-bed wing of private rooms with private-pay residents – who pay out of pocket or use long-term insurance plans to pay for their care – would be $21,683.
By setting up double rooms, the net income from a 20-bed wing would be $56,427, but an assisted-living proposal with 20 beds would yield $83,855.
However, building 25 rooms for private-pay residents at a 90% occupancy would generate $312,716 in net income.
Building 30 rooms would generate a net income of $666,080, according to the firm’s estimate.
But under an expectation of 75% occupancy, building 30 rooms for private-pay residents would generate a net income of $275,201.
Under the assumption that four of the 30 residents would have Medicaid, the estimated net income dropped to $171,888.
Gima said if the nursing home is not generating revenue through the expansion, it’s not as easy as raising rates to address the problem. The market for demential programs must be considered, and rates must be adjusted accordingly.
Although there is a concern about occupying the optimal number of beds, Gima said, a dementia wing expansion could succeed based on the services it could provide in comparison with other competitors.
“It’s difficult to find good programs, so if you have a good program, that family will make the investment to travel a longer distance for a top-notch program,” Gima said.
Although MPA recommends 25 beds, Gima said it is up to the architects to determine the exact number of beds.
Committee Chairman Chris Christensen said the only way the proposal is sustainable is by competing against private nursing homes that offer similar services.
He also voiced concerns about the proper ratio of private-pay and Medicaid patients to ensure future sustainability.
Gima said if the demential proposal isn’t working, the rooms could be adjusted for Medicare patients.
Although market demand analysis and financial feasibility has been completed, MPA still is conducting research on the programming of the facility.
Annarella said he will be able to provide an update on the programming portion of the study before December.