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 Genesis Sees Restructuring as Bridge to Future Growth

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.”

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