Chain takes troubles to court

Genesis Health files for reorganization after debt problems

Bankruptcy

June 23, 2000|By M. William Salganik | M. William Salganik,SUN STAFF

Genesis Heath Ventures, the Pennsylvania-based company with 50 nursing homes and 8,000 beds in Maryland, filed late yesterday for bankruptcy protection in U.S. Bankruptcy Court in Delaware.

It becomes the fifth of the seven largest nursing home chains in the country to file for bankruptcy reorganization since the federal government cut Medicare payments as part of the Balanced Budget Act of 1997.

Patients and employees - Genesis has about 6,000 workers in Maryland - "won't see a blip" as the company goes through reorganization, said Lisa Salamon, Genesis' director of public relations. "There will be no interruption of service."

She said the reorganization could take 12 to 18 months.

While Genesis is looking to sell some nursing homes in Illinois and Wisconsin, outside its primary service area on the East Coast, Salamon continued, it does not have any plans to get out of business lines or reduce staff, Salamon said.

According to the Service Employees International Union (SEIU), which represents thousands of workers at Genesis and the other chains which are in bankruptcy, so far no employees of the bankrupt chains have been laid off, suffered cuts in pay or benefits or had union contracts reopened.

"No one's surprised," by the Genesis filing, said Stephen B. Monroe, editor of the industry newsletter The Senior Care Investor. "Everyone knew it was just a matter of time."

Warning signs

Three months ago, in a move analysts said could be a prelude to a bankruptcy filing, Genesis missed a $3.8 million payment on its $1.5 billion in debt, and said it had gotten a 60-day extension from its lenders in an effort to restructure its debt. It then got another 40-day extension, which was to expire next week.

The stage was set for the current round of nursing home bankruptcies by changes in the industry over the past decade. The homes traditionally cared for frail elderly who stayed for long periods, with payments coming from the patients themselves or from state Medicaid programs.

But many homes, particularly the larger chains, began to care for patients recovering from hospital stays. Medicare was the key payer for those services, at a higher rate than the traditional long-term care.

Following the money

Genesis and other chains began developing Medicare services, acquiring more homes and related businesses. They bought home health agencies and contract rehabilitation firms. In the Baltimore area, for example, Genesis bought the 36-home Meridian chain in 1993 for $205 million and the NeighborCare pharmacies in 1996 for $57.25 million.

Sparks-based Integrated Health Services, Inc., which filed for bankruptcy reorganization in February, is another chain that grew rapidly through acquisition, then found itself unable to meet its debt payments.

"The fundamental economics of the industry changed when Medicare changed its reimbursement," said Arne Anderson, assistant research director for the SEIU. "Companies had expanded, hoping for a revenue stream that never materialized."

In the Genesis case, the debt load had grown dramatically when it and two investor groups bought Multicare Cos. in 1997 for $1.4 billion. Multicare, of which Genesis is 43.6 percent owner, also filed for bankruptcy reorganization yesterday.

"If they had never done the Multicare acquisition, things would probably be a little better," Monroe said.

When the new Medicare payment system went into effect, hitting most homes at the beginning of 1999, Genesis' payments from Medicare dropped from $386 per patient per day to $286, according to Salamon.

Now, Anderson said, for Genesis and other chains, "The beds are full, and most of the homes are making money on operations. What they can't manage is the interest payments."

Changes hurt industry

"It's an industry that's clearly in trouble," Dr. Charles Roadman, president and chief executive office of the trade group American Health Care Association, said last night. He said he was optimistic Medicare will raise its rates, since "it's a recognized problem both from Congress and the administration."

Congress raised Medicare rates last fall, but not to the pre-1998 levels. And, Salamon said, because of delays in implementing the new payments, "we have not seen a dime of that money."

With higher reimbursements, Anderson said, "I would expect new money to come into the industry and reorganize the companies," which could emerge from bankruptcy in something resembling their current form, although stockholders would lose out.

Monroe, however, said that since the chains that filed earliest for reorganization have still not emerged from the process, it is hard to predict what they will look like. "Genesis," he said, "is the healthiest of the group, but who's going to be able to finance the purchase of assets?"

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