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The Rewards, Challenges, and Opportunities for a CFO in Senior Living – Part II

A conversation with Diane Bridgewater, Executive Vice President/Chief Financial and Administrative Officer at LCS

The financial world for senior living providers will see several significant changes in the coming year. In this second of a two-part series, Diane Bridgewater talks about hot button issues, changes, and impacts you may not be aware of, and tips for success on topics including:

  • Tax reform and changes to accounting principles
  • Industry complexities and consolidation
  • Managing risk
  • The language of business and expanding role of finance and accounting expertise
  • Key ingredients for operational success

As Tax Day is now behind us and we look to next year, are there changes in the pipeline to tax laws that will significantly impact the senior living industry?

Tax reform is likely with the current administration, coupled with the fact that we’ve not seen major tax reform since 1986. The question is whether it occurs in 2017 or 2018. Much of the impact will affect for-profit organizations and they’ll need to look at adjustments to their tax strategy, as well as potential company structure changes. Furthermore, for-profit companies will need to make assumptions and assess the best tax strategy well before the changes are enacted. As is often the case, the new laws may come with retroactive application, which makes planning difficult. Regardless of when the changes are approved or when they become effective, how you’re conducting business today could be affected.

Tell us about new accounting principles or regulations that are a hot topic. Are there any that may be flying under the radar?

There’s a lot of buzz about the new lease accounting requirements. We’ve been talking about this, along with private company goodwill amortization, for a number of years. One accounting change on the horizon that I’m not sure our industry fully grasps is pending change to revenue recognition under FASB ASC 606. It becomes effective for non-public entities in 2019. Keep in mind that if a nonprofit has public debt, they must adopt with the public company timeline, currently targeted for 2018. That’s now less than one year away … and the final guidance for health care, and specifically Life Plan Communities, is not through review or final.

New revenue recognition will cause plenty of work for all Life Plan Communities, for-profit and not-for-profit alike. As mentioned, the new guidelines are not yet final, but implementation could come as early as next year. Start planning now if you haven’t already!

Impacts include:

  • Timing of revenue recognition
  • Adoption and initial impact on equity
  • Existing bank or bond covenant calculations
  • Changes to accounting and reporting systems (and the time to design and implement once the guidance is finalized)

Some may think 606 only involves the entrance fees at communities. That’s incorrect. It’s both the entrance fee and the monthly service fee that will change from a revenue recognition perspective.

Here’s the kicker: Monthly service fees would no longer be recognized as revenue. That’s because there’s a performance obligation for future goods and services for which the resident is paying a portion in advance.

Thus, revenue recognition would be measured based on several factors, including the full transaction price (entrance fee and expected future monthly service fees), where residents currently are on the continuum, expected time in higher levels of care, understanding “market” pricing for each level of care, etc. The new revenue recognition approach will require a high level of expertise. Make sure your accounting team or audit firm is prepared.

Speaking of complexities, what’s your outlook for the industry overall?

The way senior living is regulated at the federal and state levels, I see no scenario where it becomes less complex. I only see increasing complexity, especially on the regulatory side. Couple this with an increasing consumer base. We all know the surge of seniors coming and the rising need for lifestyle, housing, and health services.

Do you see more affiliations occurring with senior living organizations?

I believe our industry will continue to consolidate. This business is about finding ways to operate cost-effectively and efficiently to allow your product and services to be available to as many people as possible. It’s much easier to do if you have a larger financial base to invest in systems, structures, regulatory changes, new technologies, and R&D. In our industry, costs for IT, infrastructure, and other necessities like electronic medical records are expensive. Building, maintaining, and providing this on a stand-alone, or small-scale, basis is difficult and not cost-effective. You’ve got to share costs, and the best way to do that is by partnering or affiliating with a strong management company in the industry.

Talk about strategies for managing risk in senior living and approaches…

We all know health care comes with risk. The critical thing is to understand where risks lie for a senior living organization, and know the appropriate measures to mitigate risk. It’s best to have a team with various areas of expertise provide insights and guidance. This is why our risk management department leads a committee composed of specialists in finance, legal, compliance, operations, and HR. It’s our goal to ensure communities that we manage create and sustain environments for residents and employees that address and respond to existing and emerging risks. And by exceeding standard industry workplace safety outcomes, it’s our experience that communities see much lower rates of claims and lower insurance costs overall. Most important is the impact to our residents, their guests, and our employees.

In addition to the CFO, you’re also the CAO (Chief Administrative Officer) and wear several other hats. Talk about those roles and advice you’d give to someone exploring a career in finance or accounting.

I’ll start with the second part. The language of business is financials, and we live in a performance-based world. It’s crucial to know the language and understand key metrics that matter to investors, boards, and bondholders. A background in finance and accounting provides a solid baseline understanding. Whether you intend to be a business owner, a CFO, COO, CEO, or a manager of any department, you need some level of financial knowledge. You’ll never regret starting out in accounting or finance. It’s a fantastic launchpad for any career.

I typically describe my current role as being responsible for all the financial elements of the company, and many of the support areas or supporting business lines that serve our work as a community manager or owner. This includes our group purchasing organization and captive insurance business lines, as well as IT, compliance, and risk management.

My finance and accounting background positions me to drive the delivery of these support services to the various LCS business lines and the broader company. It means asking the critical questions of what drives value and efficiency (are we getting paid for providing it?), while making sure we never compromise doing our work the right way and with integrity.

Any other thoughts or pieces of advice for success?

Senior living is operationally intensive. What liberates value is not so much the bricks and mortar of the property itself, but rather the operation of the business that resides within the property. Our strong suit remains our ability to successfully manage a community and help develop a long-term strategy, regardless of its state of maturity. This is true whether we or someone else owns the community, and whether it’s a for-profit or not-for-profit entity.

Our industry is complex and will continue to see change – new technology, market and economic cycles, regulatory change, etc. The need to deliver services in a way that appears effortless to residents and owners, while making sure the complexities of the business are addressed in a cost-effective manner, are keys to success.

If you’d like to discuss working with The LCS Family of Companies to help mitigate risk and ensure the safety of your residents and staff, we’d love to hear from you.  

Learn how our philosophy and culture of partnership has lead to over 40 years of success and how together, we truly are greater. 

About Diane Bridgewater:

Diane Bridgewater provides strategic, financial, and business operations leadership to LCS and The LCS Family of Companies. In addition to directing all financial aspects of the company, Diane is responsible for overseeing the company’s insurance business line and captive insurance company results, the group purchasing organization, CPS®, An LCS Company, information technology, compliance, regulatory, and legal matters. Through Diane’s diligence, LCS is able to achieve exceptional financial results, increased levels of productivity and outstanding performance outcomes — each of which drives the company’s ability to deliver an outstanding experience to our clients and partners. Diane serves on the board of managers for Life Care Companies LLC, on the board of directors for LCS Holdings, Inc., and was recently named the Deloitte CFO of the Year. Diane received Bachelor of Arts degrees in accounting and French from the University of Northern Iowa, and earned her CPA license in 1986.