The primary objective of this Feasibility Study was to determine how and if Montgomery Meadows Residential Health Care Facility could become a "profitable" operation even with the loss of about 80% of the Inter-Governmental Transfer Funds (a loss of more than three-quarters of a million dollars in income).

There really are only two ways to accomplish this goal, which are quite obvious: increase income and/or decrease expenses.

The first thing we did was to evaluate the present physical plant, which is in exceptionally good condition considering its age. The shortcomings of the present structure are a lack of sufficient space to efficiently care for the ever-increasing physical and mental needs of the residents, and the need for aesthetic improvements. These improvements include a covered main entrance, an improved and usable lobby, a restaurant-type dining room, and improved staff facilities.

In our experience, providing for the well being of both the residents and the staff is an important factor in making an operation both efficient and profitable.

On the income side of the balance sheet, Montgomery Meadows is faced with finding ways to increase the Case Mix Index. (See the Financial Analysis and the Market Analysis sections of this Report.) The Case Mix Index is determined by averaging the "point scores" of all the residents in the facility: the higher the point scores, the higher the Case Mix Index. However, the higher the point score of a resident, the more care, equipment, and space the resident requires. This presents a major problem within the present facility, since about 80% of Montgomery Meadows income is dependent upon the Case Mix Index, which determines the reimbursement rate.

We have tried to find ways to modernize the present nursing wings to accommodate these requirements and were unsuccessful in solving the space requirements within the existing physical plant. (See the discussion of Resident Bedroom Changes, Resident Bathroom Changes, and Nurses’ Station and Service Area Changes in the Physical Plant section of this Report.) Our only viable solution was to replace the existing Skilled Nursing beds.

Another important aspect of increasing income is to keep the building full, as there is essentially no difference in the cost of operation between a 90% and a 100% occupied facility. Thus, all the profits are made in the final 10% occupancy. One of the primary ways of increasing the occupancy is to increase the number of private rooms to accommodate private pay residents and those with special needs.

We did come up with what we consider to be a stopgap measure to help improve the occupancy. This solution involves the construction of two new private rooms to be constructed as an addition to each of the three wings. (See Resident Wing Changes – Increase the Number of Private Bedrooms in Existing Resident Care Wings in the Physical Plant section of this Report.)

Since the wings have forty beds each, four of which are private, the addition of these two additional beds would create four additional private rooms, for a total of eight, as two of the present occupants of two 2-bedded rooms would be relocated to the new private rooms, making these two 2-bedded rooms into private rooms. This would give the operation a fair amount of flexibility, because any two of the existing 2-bedded rooms could become private.

Without constructing at least these additions of six new private bedrooms and aesthetic improvements, the financial feasibility study concluded that the present occupancy would continue to decline to about 90% by the year 2006. With these additions, the financial feasibility study indicates that occupancy would average about 95% by the year 2006. However, this does not resolve the problem of the loss of the Inter-Governmental Transfer Funds. Montgomery Meadows would still require higher occupancy to overcome the financial deficit.

We did look at the possibility of creating one new state-of-the-art forty-bed nursing wing and renovating the other wings to create more private rooms. This would reduce the number of beds in the existing wings to 26 or 27 beds each. Based on the preliminary financial feasibility study, the increased cost of having to operate four nursing units, as opposed to the present three, would actually increase operational costs without appreciable increase in income, because this change does not do anything to increase the Case Mix Index.

Our conclusion to resolving both the occupancy and Case Mix Index problems is to replace all three Skilled Nursing Wings with new state-of-the-art wings constructed to the east of the present building. (See Replacement of the Three Skilled Nursing Wings in the Physical Plant section of this Report.) Then two of the existing wings would be converted into Assisted Living Wings, one of which would be dedicated to caring for dementia residents. (See Conversion of Existing Skilled Nursing Wings to Adult Home Care in the Physical Plant section of this Report.) Once this renovation is completed, the lowest point score residents would be relocated to these Adult Home Wings, allowing the admission of higher point score residents to the Skilled Nursing Wings.

The Financial Feasibility Study indicates that this major renovation and addition project would increase the Case Mix Index by more than 10% and increase the occupancy to about 97%. The combination of these two improvements would essentially bring Montgomery Meadows to a financial break-even point.

We prepared construction and project cost estimates for three different scenarios. (See Construction and Renovation Cost Estimates for the Three Proposed Options in the Financial Analysis section of this Report.)

In our review of the operation, we looked at several things that might be done to reduce costs:

The many positive attributes of the management, the staff, and the physical surroundings leads us to conclude that Montgomery Meadows is a true asset to Montgomery County and can become a profitable operation.