Nursing and Residential Care Facilities in Northeastern Minnesota

by Drew Digby- drew.digby@state.mn.us
February 2009

As the economy has turned to a recession, and manufacturing and construction industries both show significant job losses, residential care facilities have continued to show employment growth and account for a substantial segment of currently available jobs. In Northeast Minnesota a boom in residential care facilities is one key factor behind dramatic growth in the health care industry as a whole and relative stability in the recession.

The good news is that the residential care industry in Northeastern Minnesota has seen a five-year growth of more than 26 percent, so our region is actually producing more services than we can consume locally and has some extra to “export.” Despite the recession, the subsector continues to hire workers. In several recent informal surveys of posted jobs in the region, the subsector accounted for nearly 20 percent of all available jobs. It also represents 7.6 percent of all private employment.

The bad news is that many of the jobs are part time or pay modest wages. The average weekly wage over the same five-year period grew only 6.8 percent to $379.

To be fair, the sector also supports a substantial amount of contract and related work in other health care segments. Much of the higher paid health care technical and practitioner occupational work that relates to residential care is attributed statistically to other health care industry sectors.

Because of the growth in the industry, the nursing and residential care facility subsector was the subject of a recent study by the business services staff and the regional labor market analyst of the Minnesota Department of Employment and Economic Development (DEED) for Northeast Minnesota. The business services staff made site visits to nearly 50 residential care facility employers to better understand their employment needs. The regional labor market analyst reviewed available labor data, market studies, projections and other reports about the subsector, and compiled the final report.

Key findings in the report are:

• Growth in the industry is driven only partially by the aging population of Northeast Minnesota. More growth is caused by relatively lower costs in the region and by limitations on growth in the industry in the Twin Cities area.
• Growth in care for the developmentally disabled and the mentally ill is as important for the industry in Northeast Minnesota as is growth in care for seniors.
• The mix of available workers, the relative cost of building new facilities, local entrepreneurship, and the existing health care infrastructure explains a significant amount of the growth. In addition, the availability of jobs in the wider economy for other family members, as well as short commute times, makes the region an attractive destination for families who have a family member who needs full-time care.
• Employment recruiting in the industry varies dramatically from location to location with some employers taking advantage of nearby college students while others recruit from other labor pools.
• Most employers say they prefer to train their workers themselves rather than pay for certified workers, although a significant minority are willing to work with area colleges to employ certified nursing assistants.
• Most employers are adapting to industry trends where individual facilities house a very small number of clients, directly employed staff are generally low-paid positions, and professional and technical services are contracted to other health care providers.
• Skilled nursing facilities are only one segment of this industry and have very different staffing needs and more financial challenges because of the many alternatives for healthier clients and because of reimbursement rates that encourage clients to choose those other facilities.

The DEED staff in Northeast Minnesota are presenting the results of their study to the region’s workforce investment boards, employers and colleges.

The entire health care industry now accounts for 21.3 percent of all private employment in the Arrowhead region, compared to 13.5 percent of private employment statewide according to statistics from the Quarterly Census of Employment and Wages for the second quarter of 2008. The numbers are especially concentrated in Duluth, where the health care industry for the same period accounted for 28 percent of all private employment and 37.9 percent of all wages. But even outside Duluth, health care is more concentrated in Northeast Minnesota than the state as a whole. Excluding Duluth, health care accounts for 15.8 percent of the jobs in the Arrowhead.

Nursing and residential care facilities include substance abuse facilities, halfway houses, mental disability facilities, group homes, hospice care, convalescent homes, homes for the elderly, assisted-living facilities with onsite nursing, foster homes for children, juvenile halfway houses, disciplinary camps for delinquent youth, and many other similar hospitals, homes, and facilities. In the five years between 2002 and 2007 this industry grew by 30.5 percent while all industries combined in the region grew by just 3.1 percent. Growth in some sectors of nursing and residential care slowed in 2008, but overall, year-to-year growth in the quarter ending June 2008 was 3.3 percent (see Table 1). In 2007 this industry consisted of 178 firms with 9,372 jobs offering an average weekly wage of $393.

The nursing and residential care industry concentration in Northeast Minnesota also continued to grow over the previous five years. Industry concentration is measured by determining the relative portion of employment in a region and comparing that to the national portion. This technique is the basis of a location quotient, which tells whether or not the industry employment is more concentrated within a specific region. A location quotient over 1.2 is considered highly concentrated and under 1.0 is considered not concentrated. Overall, nursing and residential care facilities have a location quotient of 2.92 in the Arrowhead, with some subsectors like residential mental health facilities having location quotients of over 6. Location quotients have grown substantially in the previous five years (see Table 2).

The nursing and residential care facilities industry continued to grow in 2008 despite economic contractions in other industries. The growth in Northeast Minnesota is greater than the industry as a whole statewide. Growth has occurred in both elderly care and non-elderly care. In addition, the industry growth has an impact on other health care and social assistance subsectors because of the business model that typically involves contracting or cooperating with other medical and social care facilities for technical and professional services.

Slightly more than half (50.6 percent) of the jobs in nursing and residential care facilities are located in Duluth compared to 42.4 percent of all jobs in the region. Duluth has a significant number of facilities that serve other-than-the-older population. Nearly half of the residential care employment in Duluth serves other-than-the-older population, while outside of Duluth 38 percent of the employment is in that category.

A significant number of companies within this field do not fit perfectly within specific North American Industry Classification System (NAICS) codes. The broad category of “Other Residential Care Facilities” is experiencing significant growth. In the year ending June 2008 the number of jobs in the Arrowhead region in this category alone grew 43.5 percent from 736 to 1,056.

Employment Trends and Needs
Many of the jobs in nursing and residential care facilities involve directly assisting residents, but the employment reach goes beyond those employed directly by the facilities. Most of the facilities have arrangements with other health care providers to provide advanced and technical care to their residents. The number of nursing and residential care facilities and the strength of our local market for technical and professional medical services are directly linked, and weaknesses in one part of the market would have significant impact on the other.

For their own staff, many facilities — other than traditional nursing homes, which have federal and state regulations that require more formal training for staff — reported that they look for workers with the right attitude rather than formal training, although formal training as a certified nursing assistant (CNA) was generally welcome. For older workers more opportunities seem to exist in the organizations serving older adults.

Facilities within Duluth appeared to use local colleges as a major source of potential employees, and few reported trouble recruiting. Many of the groups, however, reported trouble hiring “high-quality” workers, especially certified nursing assistants. Other organizations appeared to be uninterested in the possibly higher cost of certification and preferred to train entry-level employees themselves.

Retention issues seemed to be most significant in central and northern St. Louis County as well as Koochiching County. Certified nursing assistants in Northeast Minnesota earned a median wage of $12.18 per hour in the third quarter of 2008 according to data from the Occupational Employment Statistics Program. That number was slightly less than the Minnesota CNA median wage but higher than the U.S. median wage for certified nursing assistants.

Industry Trends
While most of the businesses said their business model has not changed, the overall shift in residential care is toward smaller facilities designed to provide a broad range of services to residents:

• In care for older adults the strong trend is away from traditional nursing homes and toward “continuum of care” facilities. Nursing homes reported a wide variety of competitive disadvantages.
• Substantial growth is occurring in subsectors of facilities focused on “memory care” for older adults with dementia and Alzheimer’s disease.
• In all sectors of residential care there is dramatic growth in smaller facilities, which are known as “Green Houses.” According to The Robert Wood Johnson Foundation, “Green House® homes are residences for six to 10 elders who require skilled nursing care and want to live a rich life. They are a radical departure from traditional skilled nursing homes and assisted-living facilities, altering size, design, and organization to create a warm community. Their innovative architecture and services offer privacy, autonomy, support, enjoyment, and a place to call home.”

Some of the industry growth is attributable to difficulty finding placements in other geographic areas, particularly the Minneapolis/St. Paul metropolitan area.

Almost all of the agencies reported that reimbursement rates were a critical issue, as was the cost of basics such as food and utilities. Most facilities work to make sure they have a mix of patients with different reimbursement sources. Those with private resources and private insurance generally paid more than those with government reimbursement.

The Arrowhead region has a relatively high concentration of residents who are 65 years old and older, which would create a need for high numbers of facilities in the nursing and residential care facilities industry. However, the high concentration of older residents does not completely explain the very high concentration of facilities in the region, especially the facilities unrelated to care for the elderly. In addition, almost two-thirds of the region’s population is concentrated in St. Louis County, which had a slight drop in the percentage of residents 65 and older between 2000 and 2006 (16.1 percent to 15.7 percent), according to Census Bureau statistics from the American Community Survey.

The aging of the U.S. population is driving demand for increasingly diverse and complex residential care services. While we typically think of residential care as serving a local population, consumers requiring specialized care facilities because of medical necessity or personal choice may be willing to relocate in order to fulfill their needs. Regions offering a spectrum of services and facility choices may accrue economic benefits beyond the societal value of providing quality care to the elderly and disabled.