Census and labor pressures continued to hit the skilled nursing and post-acute sector hard at the end of 2016, prompting industry giant Genesis HealthCare (NYSE: GEN) to take major cost reduction initiatives, including laying off corporate and regional staff.
The cost-cutting measures largely have been completed at this point and are expected to reduce the Kennett Square, Pennsylvania-based provider’s annual operating costs by $50 million, CEO George Hager said Thursday on a call with analysts. Hager did not specify how many workers have been affected.
Such sweeping measures were called for in light of fourth quarter performance, he said. Adjusted EBITDAR for the quarter was $156.6 million, down from $161 million a year prior; its revenue of $1.40 billion was down from $1.44 billion year-over-year. Shares slid on the earnings results, and were down 14.36% at the end of the trading day Thursday.
Skilled nursing and short-term rehabilitation operators, including Genesis, have been struggling for several quarters, hit by headwinds on multiple fronts. Lower occupancy, as well as labor costs that are outpacing reimbursement rate growth, were problematic in the fourth quarter of 2016, Senior Vice President and CFO Tom DiVittorio said on Thursday’s call.
Occupancy unexpectedly dropped 40 basis in the fourth quarter compared with the third quarter. On the labor front, all-in nursing wage costs per worked hour grew 3.1%, exceeding the 2.1% weighted reimbursement rate growth Genesis received from all payors, with Texas being an exception, DiVittorio said.
These issues are being felt across the sector due to a variety of factors, including the normal “ebb and flow” inherent in the business, factors in the larger economy, as well as systemic changes to the health care system, the executives said. Still, some of the ugliness in earnings is occurring because Genesis is in the midst of shifting to meet the needs of a more value-based health care model, said Hager.
“A portion of the pressure is self-inflicted as we continue to position the company for success in a value-based environment,” he said.
Hager is optimistic that 2017 will be the “trough” in census issues, with occupancy beginning to rebound in 2018. And in the long-term, he believes that Genesis will be well-positioned for success as the aging population creates a demographic boom.
The skilled nursing challenges recently prompted one of Genesis’ peers to exit the industry. Genesis itself is not going that far, but the company is moving forward with previously announced plans to exit eight Midwestern states; these are some of the areas that are seeing the greatest labor cost pressures, including Kansas and Missouri, DiVittorio said.
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Written by Tim Mullaney