Genesis
HealthCare Chief Executive Officer George Hager Jr. tells Provider in an exclusive interview that a financial restructuring
deal announced earlier in the week could bring as much as $100 million per year
in savings and lower lease payments for the Kennett Square, Pa.-based long term
and post-acute care operator.
On Nov. 8,
Genesis informed investors that its two largest landlords—Welltower and Sabra
Health Care REIT—will sell certain properties leased to Genesis as part of a
broader restructuring package meant to offer Genesis some financial breathing
room amid tight industry margins and census pressures.
Genesis is
then expected to lease the properties from the new owners at lower rates, with
the reduction expected to be $54 million annually starting in first quarter
2018. In addition, Genesis has worked with its partners to adjust some of its
debt, putting the total of the financial restructuring arrangements between $80
million and $100 million annually.
“The
industry is obviously going through some very challenging times financially,”
Hager says. “The industry is dealing with the impact of health care reform and
the evolution of our health care system to more value-based reimbursement
programs as opposed to more, I would say, sheerly volume-based reimbursement
systems.”
This shift
has created financial distress across the industry, evidenced by a significant
number of operators of varying sizes being required to restructure either through
receivership or bankruptcy, he says.
“I think
the restructuring Genesis announced is one that is unique in the industry and
could offer improvements to our earnings and our pre-cash flow by as much as
$100 million on an annual basis,” Hager says. The financial moves, he adds, “will
provide the necessary bridge to what we expect will be a cyclical upswing in
the industry as the baby boomer generation comes through the health care
system.”
Once that
occurs, demand will increase for skilled nursing care and bring a more
favorable supply-demand balance. “What we are seeing right now and over the last
decade is declining supply of skilled nursing beds. My expectation with this continued
financial distress is we will see acceleration of that decline,” Hager says.
But, the
turn to better balance should not be so far off, where there will be “crossing
of the demand increase and the supply decrease,” which will begin to drive
improvements in census levels in the industry, he says.
“This is
our hope and expectation,” Hager says.
The
Genesis leader stresses that his company is proactive amid the industry
evolution to value-based caring, noting Genesis is the only skilled nursing
operator that owns its own accountable care organization (ACO) and participates
in Medicare’s Shared Savings Program and the bundled payment program run by the
Centers for Medicare & Medicaid Services (CMS).
“We do
that [the ACO] because we have a captive, physician service company,” Hager
says. “We employ around 400 physicians, nurse practitioners, and physician
assistants, and through that capability we operate our own ACO and participate
in the Medicare Shared Savings Program.” He adds that 32 Genesis centers are in
the CMS bundled payment program under Model 3.
“In
addition to what we are doing in our core skilled and rehab businesses, we are
also taking a leadership position in moving post-acute care to increasing
amounts of services provided under capitated arrangements. This is where
outcomes and cost are the primary incentives,” Hager says. “The train runs the station,
and this is where the system is going and needs to go.”