Dive Transient:
- A brand new report from the Non-public Fairness Stakeholder Challenge alleges expert nursing facility operator Genesis Healthcare’s chapter submitting final month may be traced to monetary mismanagement by the hands of its non-public fairness homeowners.
- Formation Capital, which acquired Genesis practically 20 years in the past utilized leveraged buyouts, sale-leaseback transactions and layered debt to extract worth from the operator, whereas Genesis struggled to remain viable, based on the report.
- Genesis’ chapter isn’t an remoted occasion, the report argues. Non-public equity-backed corporations had been concerned in additional than half of massive healthcare bankruptcies final yr, based on the watchdog group.
Dive Perception:
Genesis, which as soon as operated 175 expert nursing services throughout 18 states, filed for Chapter 11 chapter protections in July. It declared $708 million in secured debt and over $1.5 billion in unsecured debt, together with cash owed to employees and distributors.
The Pennsylvania-based firm blamed the submitting on business headwinds, together with reimbursement challenges from payers and legacy liabilities.
Nevertheless, the Non-public Fairness Stakeholder Challenge stated Genesis’ monetary issues stemmed from the administration choices of its non-public fairness homeowners.
Formation Capital, together with JER Companions, bought the operator for $1.7 billion in 2007 by way of a leveraged buyout. In 2011, Formation executed a sale-leaseback transaction of 147 properties to Well being Care REIT for $2.4 billion.
The deal introduced money for traders, however stripped Genesis of the property and saddled it with long-term triple-net leases, wherein the tenant is accountable not only for hire, but in addition masking property taxes, insurance coverage and upkeep prices.
Collectively, the monetary ways lowered Genesis’ monetary flexibility and assets wanted to answer a altering healthcare panorama, the report stated.
In the meantime, Genesis appeared to chop corners on affected person care because it lowered investments in staffing and resident care.
For instance, in 2020 a Genesis Healthcare subsidiary reached a settlement with the Vermont legal professional normal after the state discovered insufficient workers coaching had led sufferers to incur accidents and in a single occasion die from receiving improper care.
One other Genesis facility, St. Joseph’s Heart in Trumbull, Connecticut, was slated for closure this yr following a number of well being and security failures.
Almost 200 residents had been relocated from the power this spring after Legionella micro organism was found within the facility’s water system. Then, two months later, sufferers had been moved once more attributable to hearth security issues.
“Genesis Healthcare’s chapter was a predictable results of a monetary technique that extracted worth by way of debt and actual property transactions whereas leaving the corporate with fewer assets to maintain care,” stated Michael Fenne, senior analysis coordinator at PESP, within the report. “Except these ways are addressed immediately, extra nursing dwelling operators could comply with the identical path and depart extra sufferers, employees, and public packages to soak up the prices.”
Throughout healthcare, non-public fairness possession is related to a heightened threat of chapter. Final yr, non-public equity-backed corporations had been concerned in seven of the eight largest healthcare bankruptcies, as tracked by the Non-public Fairness Stakeholder Challenge. Steward Well being Care and WellPath Holdings, a healthcare supplier in jails and prisons, had been two of the most important filings final yr.
