Kindred Healthcare is preparing for life after nursing homes.
The Louisville, Ky.-based company is selling its 91 skilled-nursing homes and exiting that slow-growth business for a new strategy that will rely on preferred partnerships with other nursing home operators to ensure a smooth patient handoff.
The first of those partners was announced Tuesday. Nursing home giant Genesis HealthCare has entered into “strategic clinical collaboration” with Kindred to improve quality, outcomes and patient transitions between the two systems, Kindred and Genesis announced.
Details of the partnership are unknown. But Genesis, with its 500 skilled-nursing homes in 34 states, operates in many markets where Kindred operates post-acute facilities in the faster-growing segments of home and hospice care, rehabilitation services and long-term acute care.
Kindred is the nation's largest provider of such services with 2,702 locations in 46 states and annual revenue of $7.2 billion.
In announcing the deal, Genesis CEO George Hager Jr. said that close coordination between the two post-acute giants was crucial in an era of value-based purchasing, which rewards or penalizes providers for providing quality care in the lowest-cost setting.
“Our relationship marks the first time the two largest providers of post-acute care are working together to pave the future for patients, payers and the healthcare system,” Hager said.
At the J.P. Morgan Healthcare Conference in San Francisco last month, Kindred CEO Benjamin Breier said Kindred could replace the 91 skilled-nursing homes it is selling with a “virtual portfolio” of facilities owned by preferred partners when it needed to hand off patients.
Kindred announced in November that it was selling all of its nursing homes in the face of census declines, patient mix deterioration and higher labor costs. It is Kindred's smallest and least profitable segment, posting a third-quarter decline in EBITDA of 16.7% to $29.9 million on revenue of $270.3 million.
To improve that performance, Kindred was going to have to “double down” to build the number of skilled-nursing homes it needed in local markets to get a good market penetration, Breier said. Or it could find partners already there and put a premium on coordinating care with them.
So Kindred decided to go the latter route, with the Genesis deal quickly being the first stop on that journey.
“We're creating these virtual networks to have nursing centers be a part of our portfolio but not having to actually own them,” Breier told the analysts.
The sale of the 91 nursing homes is expected to yield after-tax net proceeds of $100 million to $300 million, Breier said. That's after transaction costs, severance expenses and $700 million owed to Ventas, a Chicago-based real estate investment trust, which owns the real estate of 36 of the 91 nursing homes.
Of equal importance, Kindred expects to eliminate $90 million it is paying in rent every year and save another $30 million it is spending every year to improve the facilities.
Breier said Kindred expects to have all the nursing homes sold by year-end.
