Is Assisted Living Industry Cracking under Financial Strain?

After expanding rapidly over the past several years, the industry that provides "upscale" facilities for seniors who need care may be in need of assistance itself. The nation''s largest chain of assisted living facilities has come under fire from regulators in at least five states. Alterra Healthcare Corporation had built a solid reputation among regulators and consumer advocates by serving residents who have Alzheimer''s disease, charging $3,000 to $4,000 a month (plus medical care) while promising specialized care. Now Alterra faces violations for inadequate or undertrained staff, failing to administer drugs, and neglecting the nutrition and safety of residents.

Regulators in Michigan successfully sued Alterra last summer to remove 10 of 33 patients who required skilled nursing care. In Pennsylvania, the September death of a resident who had Alzheimer''s disease is under investigation. Colorado threatened to close an Alterra center from which residents wandered on two occasions last winter. In March 2000, Alterra settled a Minnesota lawsuit in which regulators argued that the company failed to meet its promise of specialized care for residents with Alzheimer''s disease. Citations have been issued to half of Alterra''s 29 Kansas centers.

Some observers charge that too-rapid expansion is to blame for these problems. Since 1997, Alterra has doubled the number of its centers through mergers, acquisitions, and new construction. The company now has 475 centers serving 22,000 residents in 28 states. Residents of assisted care facilities such as Alterra generally pay privately and are more affluent than the residents of nursing homes. Nevertheless Alterra''s stock fell to $2.75 a share on December 8 from a 52-week high of $35.25.

Although company executives say that violations are not the result of their financial decisions, these incidents are occurring at a time when expansion in the assisted living industry has outstripped demand for the type of care such facilities offer. Assisted living companies are facing debts and falling market values, and are attracting residents who have serious illnesses that require more care than the industry anticipated. Although companies say they will care for even terminally ill residents, they retain the right to discharge residents at any time.