Genesis will offer equity to lenders

Nursing home chain may not be able to sell assets now

Health care

June 24, 2000|By M. William Salganik | M. William Salganik,SUN STAFF

Genesis Health Ventures, the Pennsylvania-based nursing home chain that operates 50 nursing homes in Maryland, plans to reorganize its way out of bankruptcy by persuading lenders to accept equity in the company, not by selling assets, spokeswoman Lisa Salamon said yesterday.

To some degree, that may reflect Genesis' confidence in its "network strategy," building dense regional operations which include not just nursing homes but also pharmacies, rehabilitation contractors and other related businesses.

However, according to analysts and industry sources, it also reflects the difficulty of selling facilities in the current depressed market.

"The likelihood of any meaningful transfer of assets out of the public companies is virtually nonexistent for the near future," Lawrence R. Deering, chairman and chief executive officer of Tandem Health Care, said yesterday. Tandem, based in Pittsburgh, has bought about 50 nursing homes over the past two years.

When Genesis filed for bankruptcy reorganization Thursday, it became the fifth of the seven largest nursing home chains to do so. Integrated Health Services Inc., which has its headquarters in Sparks but no homes in Maryland, filed in February.

Genesis, which operates 311 nursing homes nationally, reported $2.46 million in assets and $2.33 million in liabilities in its filing. The company has said it does not plan to close facilities as it reorganizes, and that patients and employees should not be affected.

With the Genesis filing, more than 2,000 of the nation's 17,000 nursing homes are currently operating under bankruptcy protection, according to the trade group American Health Care Association.

Salamon said Genesis would like to sell its homes in Illinois and Wisconsin, which are outside its primary network area on the East Coast.

Robert M. Mains, an analyst with Advest Inc. in Saratoga Springs, N.Y., said, "Genesis has had some nice homes up for sale, but nobody wanted to buy them, and anybody who wanted to buy them couldn't get financing."

Marilyn Moon, a researcher with the Urban Institute, said, "One of the things people are finding is that some parts of health care are just not profitable, and this is one."

The wave of bankruptcies was triggered by the Balanced Budget Act of 1997, which cut Medicare payments.

While traditional care of frail elderly people is paid for by the patients themselves or by state Medicaid programs, large chains such as Integrated and Genesis developed sophisticated facilities to deal with patients recovering after hospital stays - patients often covered by Medicare.

Now, "if the court said to auction off the assets of one of the companies in bankruptcy, it would create a glut on the market," said Mains. "It would kill the market and valuations would come way down."

Ultimately, he said, this may be how the nursing home industry is reshaped: At lower per-bed costs, new investors could enter, believing that they could live with the lower reimbursements. Or, he said, some of the chains could move away from the more complex Medicare patients, returning to the care of frail elderly people with different sources of payment.

"That may be the only option left to them," Mains said. "Integrated is the best example, but Genesis as well."

"You've already got a building with rehabilitation equipment and a big gym and oxygen pumped into every room," so going to a lower level of service "may not be a wise use of assets."

Deering disagrees. With the rapid growth of assisted-living facilities taking over much of the market for the frail elderly, he said, "where nursing homes need to go is up the acuity ladder" to more patients requiring more complex services. However, he said, "there are not adequate dollars in the system today to provide the kind of care the country should be demanding." Until Medicare increases its reimbursements, "these companies don't have anyplace to go and probably will be in bankruptcy for some time," Deering said.

Moon said the recent troubles are "a tip of the iceberg of a long period of struggling to see how much we're going to pay for those services with public funds."

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