Aaron Catoe, Senior Vice President of Operations, joins Lori Jones, Chief Operating Officer of 12 Oaks Senior Living, to discuss challenges the senior living industry has experienced since COVID, as well as divulging into experiences, insights, and strategies which have involved adapting sales approaches and addressing evolving needs of resident and family.
You’re listening to the Roots podcast by 12 Oaks, where we’ll be joined by industry leaders to discuss and highlight the character, competency and care that is required to successfully manage senior living portfolios.
Lori 00:14
Welcome to The Roots Podcast. I’m your host Lori Jones, and today we have a very special guest. Aaron Catoe is our 12 Oaks Senior Vice President of Operations, and he has been in the senior living game for over a quarter of a century. And he’s been instrumental in helping 12 Oaks thrive. He’s got his Master’s in Organizational Leadership, and he puts it to good use. He’s deeply passionate about empowering our 12 Oaks team to be the best that they can possibly be, and also ensuring that both the organization and our partners who rely on 12 Oaks are on solid financial ground. Aaron, thanks for taking the time to be with us today and saying your perspective; your insights are sure to captivate our audience. Are you ready?
Aaron 00:55
I am ready and thank you for this. It’s a real honor.
Lori 00:59
All right, let’s dive right in then. So there has been a lot of change in the economy as we know. And 12 Oaks continues to recover after Covid, as do so many. Can you talk a little bit about how 12 Oaks has navigated balancing financial sustainability, at the same time, addressing the challenges that we face with margin erosion and things like increased taxes and insurance and staffing costs.
Aaron 01:24
Those are very real things we feel as an industry. So let me start with a big funnel, and then we’ll hone down on that funnel, so to speak. First, this sounds so cliché, but we stop. We literally stop and think. We stop, and we have a self-awareness and a self-management not to be caught into the survival mode.
And then second, we collaborate amongst our team with feedback and perspective of one another. And we listen. And not only do we just listen to each other because that’s in collaboration, but we listen to the metrics, we listen to the data, and we make informed decisions, not in a state of panic. Now, if you grew up in the 90s or late 80s like I did, you recognize the great point of “stop, collaborate and listen” with Vanilla Ice. IIronically, Mr. Ice was correct in this manner, if we stop and we collaborate. The reason I think he’s correct, and this is a big picture here, is our industry, we have been in survival mode with properties and operators have been in survival mode. When one is trying to survive, you engage in whatever it takes to mitigate or stop the pain. And this is important; in survival mode you just want the pain to stop even knowing that there’s future unfavorable consequences or unplanned consequences. And you know that’s coming. But you’ve got to have the pain stop because the focus is on surviving, not on thriving.
And so now we have these pains, these pain points of the consequences of increased pay rates just to compete. And we have insurance increases just to operate. And they’re very much reverberating among operators and asset managers and lending institutions alike. And we’ve all felt it since post-Covid. And frankly, as an industry, we’re not fully healed. The industry caught Covid. Now, the symptoms weren’t fever, nor was it loss of taste, but the symptoms were increased staff, decrease of occupancy, compressed operating margins. These are real symptoms to which we’re still having residual and still recovering from. And so 12 Oaks, coming back to the main point, is we have made intentional effort to move from a surviving mindset into a thriving mindset because we look at things differently in that manner. We’re no longer looking just to avoid pain. We’re looking to advance and be, well, fully functional again. So that’s a very big point that I may make a slight joke of with Vanilla Ice of “stop, collaborate and listen”, but it’s the foundation of the rest of what we do and the rest, to answer you for some actionable items, for the listening audience, is we are regaining occupancy through consistent, proactive, relationship based selling. And what I mean by that is it’s prospect facing where we connect, untangle emotional barriers that are signals to a prospect and advance the sale to the next logical step. And that’s what I mean by prospect centered selling.
Second, we want to really ensure and make intentional efforts to ensure a stable environment through sufficient staffing at the community. Just as a body needs everything for full strength and recovery, that property, when you think of it as a body or as a living thing, needs the full functionality of all the staffing because I want to be really clear, and this is really important: it’s a gap management. What stands between where we are today or what remedies or fixes where we are today and the goal is people. That’s what makes it occur. So having full staffing patterns and functionality is of utmost importance.
And the third is we manage controllable expenses through processes. Processes and structure provide a type of freedom and we manage through those processes. Think about it: these expenses and increased expenses are in a sense, what got us into this survival mode, and so managing the thing that got us into a bind is very, very, stewardship of the property and the resources.
Lori 06:22
Absolutely. And you mentioned staffing, and so many of us have experience that staffing is such a major challenge in our senior living world. We have to find the right people, we’ve got to get them on board and keep them happy enough to stay. So it’s the combination of recruitment and retention, and these are really complex, real challenges that we deal with on a day to day basis. Can you walk us through a bit about how 12 Oaks has developed processes to address these challenges that we have?
Aaron 06:55
Oh gosh, those real challenges with staffing, and recruitment and labor increases at the forefront of challenges. A way we tackle is we really use a formula. And I’m going to back into this once again. And this is a simple formula or seemingly simple. And if you’re good at math, you’ll understand this. It’s one over one. Instead of numbers, it’s resources over responsibilities. Resources over responsibilities. And these two things, namely resource and responsibility must equal each other because when responsibilities outweigh resources, burnout occurs, stress occurs, negative emotions and anger and frustration and annoyance all occur, and trickle down to all sorts of the business. And then when resources outweigh responsibility, while you have lack of challenge, you have boredom. And that creates a whole nother set of issues that need to be dealt with. And so a primary way or one primary way that 12 Oaks has really addressed this is we have an in-house recruiting team, and this in-house recruiting team recognizes the immense responsibilities that the executive directors and department heads are currently swimming in, and it increases their resources. It doesn’t decrease the responsibility of the responsibilities there. We aren’t going to decrease that. It increases the resources for onsite staff, permitting the onsite staff to really focus on items like resident care, occupancy increase and financial performance of the property. So we increase the resources, the recruitment.
I’m going to pause there and just make sure that that’s making sense so far.
Lori 08:45
Absolutely. It really does. And I know that part of the staffing challenges and the complexities that we face are aware of making sure that our levels of care are captured and, that we are addressing those to support the staff right now that you mentioned. Can you talk a little bit about that?
Aaron 09:02
It’s so true. There’s a concept in many industries, senior housing supreme example, of service creep. And so we really want to stay close, or we really do stay close to level of care charges so we don’t experience the service creep. And the result is increased revenue, financial performance of the property, sufficient staffing, it combats burnout. We have some real data to be able to present to owner entities or lending institutions of why we may need additional staff, or frankly better stated why the property may need additional staff. And so staying close to those metrics are of utmost importance.
We do a couple other things as well that I think people may have an interest in if we can go into those.
Lori 09:51
Absolutely. Please do.
Aaron 09:52
We had spoken earlier about changing mindset. And at 12 Oaks we also change mindset of it’s human nature we can get so caught into the do, do, do, the busyness, the busyness, the urgent, versus who we are as a leadership group and as a leadership team. Instead of doing and doing and doing, it’s who we are of being. We don’t lose the doing, it’s business, we’ve got to do things. But we increase the being of who we are. What I mean by that is we have processes and structures at 12 Oaks, where a leader’s personal transformation, like a transformational experience, moves someone from a level one leader to a level five leader. And what I mean by level five leader is that there’s an aura about you, and people follow and stay loyal and stay connected to you because of who you are. There’s something about you that draws you in versus like a level one leader, because you have a position and people follow you or are loyal to you because of your position or your title. And there’s a big gap between these, and we have some real functional and proven ways in which we increase the skill set among EDs department heads, regional staff alike.
Lori 11:16
And leadership starts with hiring well, right? We do focus a lot at 12 Oaks on leadership, on leadership development, making sure that we have the right people in the right position. And can you talk a little bit about how we do that, through some of the assessments that we do as well as our focus on the people, please?
Aaron 11:38
Again using the funnel analogy, let me define a transformational experience and then how we do it. When I’m feeling ill, I’ll go to the doctor and at the doctor I will get my shot or some medicine, and all of a sudden I transform from feeling sick to feeling well. That’s a transformational experience. And what’s really important about that analogy that people would benefit by noticing from, is the transformation came from something outside of myself, namely the medicine in this example or this case. And so it’s the same with personal development or leadership development. Its transformation comes from something outside of ourselves. And so the way we can focus on this is with programing, where there’s a focus on character development, the internal skill set of a person and competence. And so we have character and competence that we focus on. The way we interview also reflects this from behavioral based interview, exercise from experiential exercises that we have in the interview process. And we also use what are called psychometrics. An example of that are things like Harrison Assessments or risk assessments or EQ assessments. And we’re able to utilize these to help guide us and get information, in order to know where we are with this candidate and how they fit in the environment. If it’s something they enjoy in the environment of which we promote at 12 Oaks and all sorts of other items to be sure it’s a great fit in this transformational journey that we’re all in at 12 Oaks. Even C-suite members, executive team members, are all included in this transformational journey that we’re on as leadership development.
Lori 13:32
Absolutely. And I understand that 12 Oaks, well, I know that 12 Oaks has developed our Harrison Assessments option to support our culture and to support our competencies and our character, and that’s been very instrumental, also helping us make sure that we’re finding the right people that will fit into our organization as well as our culture and address our core values.
Aaron 13:54
Yeah, quickly in 20 seconds: In the development of it, we used third party consultants, and we took really high performing executive directors, and had the assessments based on this performance of who they were internally and on some competencies. And then new candidates are scrubbed against this criteria, which was developed. It’s a really neat process and kind of advanced. A lot of people still interview in a wagon train kind of format, and we’ve moved to Star Trek and we’re really proud of it.
Lori 14:27
Absolutely. Thanks, Aaron. So let’s switch gears a little bit and talk about fiscal health. That’s been a challenge as well with the changing in the economy. And we have to manage and maintain our fiscal health alongside resident affordability. And resident affordability is a challenge in the economy as well. So would you shed some light on some of the strategies that 12 Oaks has taken to maximize our revenue, while still ensuring that our services remain affordable to our residents?
Aaron 14:56
Often there’s things that seem to compete in business, and they’re both right. Like, things need to be affordable for a resident, and we need to make the bank note and sometimes these things compete. And so that’s really a good question. So let me set this up a little bit.
There’s a really advanced and known leadership author named Peter Senge who wrote “The Fifth Discipline”. And there’s a concept within The Fifth Discipline that Senge speaks to, and it’s “Today’s problems come from yesterday’s solutions.” All right. And it’s very profound because there was a time in survival mode we had substantial and expedient rent increases, and it caused a problem down the road of resident affordability, and it’s understandable. There’s no judgment because we too were in that survival decision making mindset, and it’s understandable. And it’s even encouraged that this decision that was a survival mode decision really let us escape the immediate pain of mitigating loss. But it created a real affordability issue for residents. And if you pile on food cost and insurance and labor and interest and taxes… and those are the things that are just coming to mind right now. So to answer the way we balance these two competing forces of rate and resident affordability is again, we stop and we think as a group and a team, what solutions are we making today that are going to affect tomorrow and what problems will they create? We’re proactive in our thought process, in our thinking. For example, a term thrown around a lot is a “warm body syndrome” indicating if there’s an open position, just anyone you put them in there. That certainly solves the issue of we have an open position and it’s fixed, but it creates more issues. It’s another concept called compensating feedback. Like we stepped on one bubble in the carpet, namely the open position, and it got fixed, but two more bubbles came up. And so it creates a type of cycle that it’s very, very difficult to get out of. But that’s just one example of the problem.
But let me get back to the main question here, is what we’ve done that appears to have great long term favorable consequences to balance revenue and affordability is this: we’ve converted a couple of properties to middle market properties. So with this middle market, we’ve had some properties that were for years, marketed as moderate to high end properties. And we made a decision and ran out the proforma and gave thought to this of what if we convert this to lower services, but drastically lower price? So that we’re the market entry price competitor? And you still get three meals a day and housekeeping, but it’s at a lower service level and it’s still great service, but that’s one way we’ve combated this is convert to middle market.
You know, another way is many operators have shown revpar of 10% to 12%. And it’s a push followed by another high percentage rate. So we’ve decided as an organization that we really need to allow the system to balance. And while we still need rate increases or existing rental increases, ERIs, we limit that to around 7%. So we’re between 5% and 7% to let the system balance and let the affordability catch up with the rates that have been incurred. So does that make sense or would you like me just to keep on going more?
Lori 19:07
Yeah that it absolutely makes sense. And I know that we had the Social Security increases last year that helped all of us kind of get a little bit higher, and our rent increases last year, but, still balancing it. But at the same time, we’re still working towards those increases to reflect that.
Aaron 19:26
Something that ties to that loosely, it prompted a thought in my mind, is it seems so simple, and I hope a number of operators do this, is an exposure tracking. And by that, I’m referring to open units or open unit mixes or types that are within a property. For example, just for an easy number, if there is a 100 unit property and it has 30 vacancies, and every one of those vacancies is a studio, you’re exposed of that studio style. And so in an effort to lease up, you can reduce that studio pricing significantly. And this is what’s great, which increases affordability for the resident. It grows occupancy at the same time, which results in increased revenue, and it mitigates margin erosion. So it’s literally a win for the business in the property and a win for the residents. So what Stephen Covey refers to is win-win scenario. And that would be a great example of an exposure report, and just tracking that. Or even expense control, just even expense control different from revenue. And this makes sense as we’ve had these substantial rent increases to mitigate expenses. So expense control from the good old fashioned spin down is something that’s great.
And lastly that comes to mind is having an appropriate staffing model, just an appropriate staffing model. While you may be using all the budgeted dollars for the staff you’re saving on temp contract help, you’re saving on shift differentials, you’re saving on overtime, and it makes all sorts of financial sense to run a full staffing model.
Lori 21:13
Well, thank you. And I appreciate all of your time and insight today. I am grateful for your expertise, and very happy to have you as an instrumental part of our team here at 12 Oaks.
Aaron 21:25
Mutual fan club. Thank you for having me.
Speaker 1 21:28
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