Assisted Living Level of Care Fees: How They Work and Why Sellers Overstate Them
Most assisted living communities charge a base monthly rate for the apartment, meals and basic services, plus a level of care fee that rises with the amount of help each resident needs. Care fees can make up a large share of revenue, so they are one of the first places a buyer should look, and they are also one of the easiest numbers in a seller's statements to overstate.
Care levels are usually set through a resident assessment that scores needs such as bathing, dressing, medication management, mobility and incontinence, and the score places the resident in a tier or adds points that convert into a monthly charge. Some communities use three to five tiers, some price care point by point, and some bundle everything into an all-inclusive rate, which makes comparisons between buildings harder than comparing base rents.
Care fees are only as accurate as the assessments behind them, and a seller who reassessed every resident just before listing may have moved many of them up a level. That raises revenue on paper without any change in the care being delivered, and some residents or their families will dispute the new charges after the sale, often in the first months of your ownership.
Billed care fees and collected care fees are not the same number, because families push back on increases, operators waive or discount fees to keep a resident, and residents on Medicaid waivers are often paid at a fixed rate regardless of the tier the community assigns. A care revenue line that matches the billing schedule exactly is a reason to ask more questions, not a sign of a well-run building.
Care fees should also match the staffing that delivers the care, because if a building reports high average care levels but runs on a thin schedule, either the care is not being delivered, which is a survey risk, or the levels are inflated, which is a revenue risk, and neither is something you want to discover after closing.
Disclosure rules shape how fees can change, and in Minnesota, licensed assisted living facilities must give prospective residents a uniform disclosure of the services and amenities they offer and what they charge, which gives residents a written baseline to hold the operator to when fees rise.
Care revenue also changes as the resident population changes, since a building full of residents who are aging in place will see care levels rise naturally over time, while a building that has been filling with lower-acuity residents to lift occupancy may see average care revenue fall even as the census looks healthier.
Many communities also charge separately for medication management or incontinence supplies, and those add-ons belong in the same review, because they can be counted twice when a seller reports both a care tier and a separate fee for the same service.
Residents and families judge the total monthly bill rather than the tier, so a sharp care fee increase can push a resident to move to a competitor or to a lower level of care elsewhere. A seller's rising care revenue sometimes comes with a rising move-out rate, and the two should be read together.
Ask for care revenue by resident and by month for the past year, alongside the assessment dates and the tier each resident was assigned, and compare billed fees with what was actually collected. Ask when residents were last reassessed and why, and how average care levels compare with the staffing schedule. If care fees rose sharply in the months before the sale, find out what changed in the care before you pay for the revenue.
Care revenue that rose for the right reasons still has to be matched against the staffing it requires, because a higher tier that the building is not staffed to deliver will not last. I help assisted living buyers review care fee revenue by resident, compare it with assessments, collections and staffing, and build models that price the facility on the care revenue it can keep. If you are looking at a facility with rising care fees, send the financials to amer@awadcapitaladvisors.com, and I can help you see how much of that revenue will hold.