Hope for ailing firms: savvy and experience can usher long-term care providers through these difficult times
Hope for ailing firms: savvy and experience can usher long-term care providers through these difficu
For long-term care companies, prospects are particularly troubling. It begins with the prospect of poor “credit worthiness” in the eyes of lenders and continues with a litany of potential obstacles. They include increasing competition from investor-owned chains, growing financial pressures from the government as a result of continued reimbursement cuts, aging treatment facilities, the growing cost and complexity of technology and IT infrastructure, the need to constantly improve quality and patient safety, continuing shortages in the labor supply, nearly 47 million Americans who remain dependent on the health system and yet are uninsured, and the reality of a rapidly growing aging population.
Turnaround consulting firms are often brought in when it's too late—with distressed businesses waiting until the cash has dried up and lenders have lost all patience for non-compliance of loan payments, and so they are left with the limited option of immediate liquidation of all assets. Lenders, meanwhile, are faced with too many bad eggs in the portfolio, with no relief on the front lines.
Case in point
A leading bank lender for senior living and long-term care companies recently found that one of its clients, a chain of 10 continuing care retirement communities, had entered into a new venture to purchase two freestanding 250-bed nursing homes located in northern Pennsylvania and New York. After two years of funding, the provider found itself in violation of loan convents as a result of a cash short- fall for buying a distressed operation and myriad problems that included a misunderstanding of the state reimbursement system, cash pressures to meet payroll, high recruiting costs, contract labor expenses and a declining census and payer mix.
Additionally, the two buildings were in dire need of some extreme “tender loving care.” Even worse, the lender had no updated information on the property and required help in getting a viability assessment completed by a management consultant company. The provider mistakenly believed that it could ignore monthly cash short signs and simply finance operations. No leading institutions would lend any money to refinance both facilities and refinance their way out of the problem.
The operation had no chance to work its way out of the mess, and was forced to liquidate—hardly a unique situation.
Changing the landscape
For companies seeking assistance and third-party verification, an effective and experienced management consultant will have the ability and resources to help both parties make organizational assessments quickly, efficiently and cost-effectively. Since this is their business, they already have a network of resources in place to make this a smooth process.
Any advisory firm being considered must have the agility to quickly assess an organization's current and prospective state of performance and capacity for organizational change in order to develop a turnaround plan that includes:
• Reviewing their pricing plan packages related to apartment admissions.
• Gaining a general understanding of the business operations, with the intent to explore and confirm the operations of the business activities and recommend improvements where warranted.
• Determining the need for a financial turnaround: involving the parties in the process; knowing early warning signs of pending financial difficulty; and completing the analytical/diagnostic stage (i.e., balance sheet vs. operational restructuring; organization change and leadership issues; strategy and game plan development).
• Identifying core assumptions, including a need for prospective financial information, game plan execution and stakeholder participation in the turnaround plan development.
• Monitoring the execution of the plan and reporting the results, which includes the interest and role of lenders and investors, the credit market prognosis, and the quality of care issues in a turnaround/bankruptcy environment.
• Reviewing the processes for developing and executing marketing programs for generating referrals and assessing organizational structure and management reporting.
After the evaluation is completed, the lender will have the information needed that may involve a number of options, such as an exit strategy, with additional funding used to turn the operations around with outside management oversight while preparing for a sale. The right consultant firm will have the insight to spearhead this process with its primary goal to make it a “win” situation for both parties.
The current environment is certainly not for the meek of heart. Yet, all is not lost. Knowing the adverse conditions is part of finding solutions. Despite the turmoil, savvy and experienced healthcare leaders will not only survive but thrive in 2009. Management consultant firms will play a vital role.
Michael Sandnes is managing director, Healthcare Practice, at Executive Sounding Board Associates.