I.  ENVIRONMENTAL SCANNING

1. Assisted Living vs. Nursing Home

"Assisted living"- it’s the hottest eldercare buzzword today.  With revenues in the tens of billions per year, the assisted living industry certainly deserves our attention.  On a daily basis, primarily independent, affluent Americans depart their households and nursing homes for the comfort, camaraderie and care promised by attractive assisted living facilities ("ALFs"). Analysts estimate that up to one million people live in 5,000 to 6,000 ALFs nationwide.

As recently as the late 1970s, most of older and frailer Americans who could no longer live at home ended up in nursing homes with the usually institutional environment. “ It was a tragic double standard that 85 year-olds were being institutionalized for things five-year-olds would never be institutionalized for-issues often no more medically complex than incontinence,” said Paul Klassen, founder and president of Sunrise Assisted Living, which operates 145 assisted living facilities nationwide. Such facilities may not have been appropriate for everyone, but they were certainly readily available: In 1976, there were 690 nursing home beds for every 1,000 people over 85, according to BT Alex. Brown.

Nursing Home care is expensive. Although prices vary, the basic charge for a double-bed room in a typical nursing home is in the range of $30,000 to $60,000 a year. The costs of medications and physician visits are not included in the basic charge. Also, special treatments such as physical, occupational, and speech therapy often add to the cost. There are also possible additional charges for drugs, laundry, haircuts, and extra services. Three out of four patients are dependent upon government assistance through Medicare and/or Medicaid.

Nursing homes are not only very expensive; they are generally the last place the elderly want to go. Most of nursing homes look and feel like institutions, because it is cost effective to construct large buildings with small rooms and long corridors reminiscent of hospitals and schools, giving the residents a sense of lost privacy and dignity. The nursing home does not provide a great deal of privacy, because one’s bedroom and bathrooms do not have locks and privacy curtains instead of walls used to separate roommates. In an effort to help as much as they can the concerned friend, relatives and caregivers ignore the wishes of the nursing home resident.

“Assisted living is an example of the good news in aging,” U.S. Secretary of Health Education and Welfare Donna Shalala observed in a 1994 issue of Contemporary long-term Care, a health care industry trade publication. “State, local governments, private corporations, and the frail elderly themselves have creatively met the need for a care at a reasonable cost, while maintaining the individual’s dignity and independence.

This new option for older adults is expanding at a time when private and public resources for long term care are shrinking. There is a bipartisan consensus in Congress that Medicare, as currently funded and dispersed, will be out of money by early in the coming century. Currently long-term care is the single largest line item in the Medicaid budget. Many industry professionals estimate that $2 billion to $5 billion dollars per year could be saved each year nationwide by moving people from nursing home to residential assisted living facilities. At a time of diminishing state and federal resources, pressure is growing to find new solutions to the growing needs for long term care. Many believe assisted care may be one such solution. Since 1995 the nursing home has lost 5 percent of its bed to assisted living and fears it may lose more. It is becoming clear to many of the elderly and other caregivers that when intensive medical care is not needed, assisted living offers greater choices, more flexibility and independence in daily living, and lower cost.

2. Assisted Living vs. Staying at Home with Relatives

More than 7 out of 10 people with Alzheimer’s disease live at home. Almost 75 percent of home care are provided by family and friends. The remainder is “paid” care costing an average of $12,500 per year, most of which is covered by families. U.S. business estimates that the cost of lost productivity due to an employee caring for an aging relative is $11.4 billion per year. Currently, 30 percent of U.S. workers care for an elderly relative; 54 percent predict that they'll be in a caregiving role within 10 years.

Caregivers constantly confront with a lot of drastic emotional problems. By research, depression is four times more likely to strike those over age 65 than younger individuals. It is found in 20 percent of persons with Alzheimer’s disease, in up to 50 percent of Alzheimer caregivers, and in 15 percent of adults over age 65. Most people never get help for this treatable illness. More than 80 percent of Alzheimer caregivers report that they frequently experience high levels of stress, and nearly half say they suffer from depression. Many caregivers don’t recognize their needs, fail to do anything about them, or simply don’t know where to turn for help. Too much stress can be damaging to caregivers and the person being cared for. Also it is common for caregivers to experience feelings of loss, especially if their lives and someone they love is changed by Alzheimer’s disease. The natural phases of grieving usually involve denial, anger, guilt, physical symptoms, and eventually acceptance.

The assisted living option is popular with caregivers that wish their loved ones aging with dignity. Most of assisted living services are delivered in an elegant, residential environment by staff trained to encourage the independence, preserve the dignity and protect the privacy of residents.

As the growth of dual-income families, people have more money to support their parents rather than take care of their loved ones. Approximately, 58 percent of all females between sixteen and sixty five years old are now in the labor force, and female participation in the labor force is expected to grow to 63 percent by 2005. Obviously, more and more senior people will come to assisted living from their children’s home.

3. Assisted Living vs. Alzheimer Disease.

Assisted Living is an appropriate place for someone who is too frail to live at home but does not need round-the-clock skilled nursing care. By research, around 50 percent residents suffer from Alzheimer disease or other memory disorders. Alzheimer’s disease is a progressive, neurological disorder that attacks the brain and results in cognitive problems, such as memory loss, impaired thinking, and strange behavior. Alzheimer’s is the most common form of dementia and the fourth leading cause of death in adults, after heart disease, cancer, and stroke. Here is general statistics and statements related to Alzheimer’s disease offered by Alzheimer’s association, the largest national voluntary health organization:

Approximately 4 million Americans have Alzheimer’s disease. A national survey conducted in 1993 indicates that approximately 19 million Americans say they have a family member with Alzheimer’s, and 37 million know someone with the disease.

14 million Americans will have Alzheimer’s by the middle of the next century unless a cure or prevention is found.

It is estimated that more than 22 million individuals worldwide will have Alzheimer’s by 2025.

One in 10 person over 65, and nearly half of those over 85 has Alzheimer’s disease. A small percentage of people in their 30s and 40s develop the disease.

A person with Alzheimer’s lives an average of 8 years and as many as 20 years or more from the onset of symptoms.

Alzheimer’s disease costs the U.S. at least $100 billion a year. Neither Medicare nor private health insurance covers the type of long-term care most patients need.

Alzheimer’s disease costs American businesses more than $33 billion annually — $26 billion to lost productivity of caregivers plus $7 billion related to costs for health and long-term care.

More than 7 out of 10 people with Alzheimer’s disease live at home. Almost 75 percent of home care are provided by family and friends. The remainder is “paid” care costing an average of $12,500 per year, most of which is covered by families.

Half of all nursing home patients suffer from Alzheimer’s or a related disorder. The average per patient cost for nursing home care is $42,000 per year but can exceed $70,000 per year in some areas of the country.

The average lifetime cost per patient is estimated to be $174,000.

AD is a serious, degenerative disease without a cure. It takes a great toll on patients and their caregivers. Needless to say, Alzheimer’s disease drove and is driving hundreds of thousands of people from their homes to healthcare facilities, and this group of people consists of the huge customer base for Assisted living industry. What if someday a cure for Alzheimer’s and related dementia will be found? "There are now more than 25 new drugs for AD in various stages of development, and researchers believe that within the next decade significant progress will be made against this devastating disease," said Dr. Zaven Khachaturian, director of the Alzheimer's Association, and the Ronald and Nancy Reagan Research Institute. Fortunate, The result is even more favorable for Assisted Living Facilities. If Alzheimer’s disease is cured, the life expectancy of 50 percent of the population over 85 will dramatically increase. The Assisted living facilities will have an even larger number of frail people at the end of life, which experiences a physiological frailty, not a mental frailty. Virtually, everyone has anywhere from six months to sixty months of this period of chronic frailty. That is really who assisted living is beautifully set up to serve. The potential market is large, since the 85- and-over age group is growing faster than any other segment of society. 

4. Assisted Living vs. Baby Boomers

Within at least thirty years, assisted living will be directly and indirectly related to baby boomers.

Assisted living is a market that’s really aiming at children Currently assisted livings target nearly all of their marketing at a fifty-year-old daughter. She is the one making decision, doing the research, and signing the contract. Smart marketers build their facilities where children are. 20 years later, 78 million baby boomers themselves will be arriving at assisted living’s door. So studying and tracing baby boomer’s lifestyle, their interests and preference and their value become critical for success in assisted living industry.

The sheer size of this generation represents an unprecedented purchase power in American history: Older adults, 50 and above, control over 80 percent of the nation's assets, exceeding $7 trillion. Whereas older adults age 65 and above, represent only 12.7 percent of the population, they represent 36 percent of personal healthcare expenditures.

Marked as individualistic baby boomers, people in this generation value personalized economy. They believe that products or services are custom designed and marketed to ever-smaller target markets. Successful businesses must deliver products and services at the convenience of the consumer and price competitively or create innovative products that can command premium prices. The implication for assisted living is that successful facilities must provide high quality and customized services. From community design and decoration, food, services, activities to daily schedule should be carefully tailored to meet individualized needs. In the future, different bunched, bundled, every kind of pricing plan, style, philosophy even different cultural environment will boost diversified and fantastic assisted living.

II.  COMPETITION ANALYSIS:

Nationwide

During the past two decades, few industries outside Silicon Valley have taken off as quickly as assisted living, which has grown from a nascent concept to an $18.6 billion industry that cares for about 1.25 million of the country’s elderly and disabled. By research, 13 percent of the U.S. population in the 65-and-older age group, and with the 76 million baby boomers approaching retirement, the need for home-based health care in the United States is rising.

So far, assisted living is still a fragmented industry, which is populated by thousands of small and medium-sized companies, many privately held and none with a substantial share of total industry sales. Low entry barriers allow small firms to enter quickly and cheaply, and compete on an equal cost footing with larger firm. Senior service demand is so large and so diverse that it takes very large numbers of firms to accommodate residents’ requirements.

Assisted living is relatively new that no firms have yet developed their resource base and competitive capabilities to command a significant market share. But, with the intensifying competition, some experts predict that in the next 20 years, assisted living will transit into its maturity life cycle, which is characterized by constantly emerging industry leaders, acquisition and consolidation among competitors.

Assisted living facilities come in all sizes. The Brighton Gardens units, built by Marriot, for example, each house a hundred or more residents. Similarly, Sunrise Assisted Living, featuring elegant Victorian architecture, has more than a hundred residents in a single complex. Followings are some examples of major players: 

Sunrise Assisted Living, Inc.

Founded in Northern Virginia in 1981 by Paul and Terry Klaassen, Sunrise is one of America's largest and most experienced providers of assisted living, with more than 170 communities in 25 states and the United Kingdom with over 13,500 residents. Guided by their Principles of Service, Sunrise affords families peace-of-mind by providing today's seniors with a range of personalized assisted living services. Demand for Sunrise Assisted Living has been astounding. In addition to their existing communities, Sunrise has more than 70 other properties in development. May 23,2001, Sunrise Assisted Living, Inc. (NYSE: SRZ) began trading on the New York Stock Exchange (NYSE). Sunrise was previously listed on the Nasdaq National Market under the symbol "SNRZ."

Marriott Senior Services

Marriott was founded over 70 years ago as a family business. Hard work, respect for the dignity of the individual, and dedicated, caring service have helped the company earn an unmatched reputation for quality in all they do. In 1986, Marriott created its Senior Living Services. In 2000, they run 150 communities all around the nation, each house a hundred or more residents.

Summerville Senior Living

Summerville was founded in February 1996 with a goal of providing senior living solutions that exceed the expectations of seniors and their families and set the standard for senior living nationwide. Today they have 53 communities, 25 communities are in California.

Prestige Care. Inc.

Prestige Care, Inc. is a fourth generation family business with a history dating back to 1946.   It is a privately held company specializing in long term care and senior housing. Incorporated in 1985, the company offered skilled nursing services at freestanding facilities throughout the Pacific Northwest.  It later entered the retirement housing market in 1991 and initiated preliminary plans for the development of an assisted living product. Prestige developed and opened its first assisted living community in March of 1996. The related companies now operate 18 skilled nursing facilities and 24 assisted living communities in 8 western states. 

Regent Assisted Living

Regent Assisted Living’s community, corporate and executive staff take great pride in developing and successfully operating over 35 premier assisted living communities in 11 states. Much of Regent's success is due to their strong executive, operations, development and marketing management teams who lead the way in successfully planning for growth while maintaining high quality operations

Followings are common characteristics shared by most of the industry larger competitors:

l       They created their senior services within the recent two decades and expanded their facilities rapidly around the nation. All of them have proactive strategy for further development.

l       Minimum monthly charges can reach $4,000 per month, or $48,000 per year. Nursing home expenses reach similar height.

l       They build their own residential-style buildings in attractive communities; none of them adopts converted building. They can achieve 80 percent occupancy. Sunrise assisted living announced that they can achieve 94 percent occupancy in their 170 communities.

l       Their philosophy is to offer resident’s choice, dignity and privacy, maximize independence and help to foster individuality.

On the other end of the scale, thousands of “Mom and Pop” operations of the traditional boarding house variety based in neighborhoods or small towns, have only a very few residents. They believe that small, homelike facilities, nestled in the communities where residents have spent many years are not only preferred by residents, but actually provide an atmosphere in which those residents can live happier lives at a cost that is lower than that of huge and standardized ALFs. These smaller, home like facilities typically house fifteen to twenty residents. A highly individualized program is designed to cater to each person’s needs. Assisted living facilities such as Wisconsin-based Encore, Sylvan Crossings and The Carrington have taken this approach. They believe that it is in everyone’s interest to keep the elderly in the fabric of their families, their surroundings, and their communities as long as possible.

2. Competition in California:

California licenses 5,900 residential care facilities for the elderly with 123,238 residents. About 70% of the facilities serve fewer than six residents. These facilities account for between 25-30% of all residents. As in other states, nursing homes have not expressed interest in converting to assisted living facilities, however, many nursing homes are adding assisted living to free beds for higher need residents and to provide referrals as assisted living residents age. By research, ALF populations are strikingly similar to nursing home population. Roughly, there are 250 thousands people live in healthcare facilities. Comparing with the population data from http://www.usadata.com/ below, we can tell the potential market is huge.

	Los Angeles	San Francisco	San Diego
Total population	11,762,950	5,222,380	2,081,930
Age 65 or older	1,612,820(13.7%)	763,835(14.6%)	311,805(15%)
Household income $50,000 above	41.4%	54.9%	37.3%