Genesis Health Ventures filed for Chapter 11 bankruptcy protection late last week, the fifth publicly traded nursing home chain to do so in nine months. The Kennett Square, Pa.-based company said it had secured $250 million in financing to keep operations going while it restructured.
Although no one expected widespread closures or disruption of patient care to result, at least some observers said that the bankruptcy filings of Genesis and its affiliate, the Multicare Cos., would nevertheless have widespread effects.
The companies together operate about 275 nursing homes and 50 assisted-living facilities in 16 states. In filings with the U.S. Bankruptcy Court in Wilmington, Del., the two reported consolidated assets of $2.4 billion and debts of $2.3 billion. Genesis owns 44% of Multicare, Hackensack, N.J.
Like other nursing home chains that have filed for bankruptcy in recent months, Genesis blamed a 1998 change in the Medicare payment system for skilled-nursing facilities for its financial meltdown.
The Congressional Budget Office estimated that Medicare payments to skilled-nursing facilities between 2000 and 2004 will drop 28% from projections prior to the change to $90 billion.
The American Health Care Association, a nursing home trade group, said that drop is $15.8 billion more than Congress intended--too much for the industry to absorb.
At Genesis, the cuts translated to a 25% drop in average per-day payments for Medicare patients to $302. That decline contributed to a loss of $43.6 million, or $1.13 per share, on revenue of $604.8 million in the second quarter ended March 31.
But like Vencor, Sun Healthcare, Integrated Health Services and Mariner Post Acute Network, all of which have filed for bankruptcy since last September, ill-timed acquisitions also hurt the company.
In 1997, a year before the new payment system was launched, Genesis partnered with two investment firms to acquire Multicare, a chain of 155 nursing homes, in a $1.4 billion transaction. Genesis funded the deal by issuing debt.
Last year the firms, New York-based Cypress Group and Fort Worth-based Texas Pacific Group, invested an additional $50 million in the company. But that help apparently came too late.
"They put in the money believing that things would get better, and they haven't," said Rob Mains, a Hartford, Conn.-based analyst for Advest.
Revenue had dropped so dramatically that Genesis couldn't pay the interest it owed on its debts. It's been negotiating with lenders to restructure that debt since March.
Advocates and financial analysts alike cited the wider implications of the spate of nursing home bankruptcies.
Advocates worried about quality of care. "I think that the bankruptcies are having an effect of many people (surveyors) being more concerned about citing deficiencies," said Toby Edelman, staff attorney at the Washington office of the Center for Medicare Advocacy. "If anything, people are going to back down."
Analysts said they are worried about tightening credit.
"The bankruptcies in the nursing home sector have burned public equity investors but also banks, real estate investment trusts and other providers of capital to the healthcare industry," said Bill McGahan, a healthcare analyst for Warburg Dillon Read. "When a provider of capital to the healthcare industry, like a commercial bank, is burned in healthcare services, that affects their appetite for all healthcare lending."
Lisa Martin, a healthcare analyst at Moody's Investors Service, said the bankruptcies wouldn't directly affect not-for-profit hospitals' ability to borrow in the tax-exempt bond market. "I'm not sure that one more bankruptcy would make a difference one way or another. There are already a lot of factors that are creating the difficulty in accessing capital," she said. "But it's an example of the impact of the (Balanced Budget Act of 1997) that has affected all of the (health) sectors."
And then there's the political fallout. "From the ability to make another concerted splash in Washington--I think they've already gotten mileage out of Genesis," said Leslie Henshaw, a New York analyst at ING Baring, referring to the AHCA's lobbying efforts to have Medicare restore money to skilled-nursing facilities.