Derek Pierce, managing director at Healthcare Management Partners (HMP)
Derek Pierce, managing director at Healthcare Management Partners (HMP)

America’s healthcare landscape still finds itself facing uncertainty and a state of flux. One of those areas where we expect to continue to see financial distress is in the senior care provider space, especially those located in rural or economically challenged regions.

There are many factors that determine what can or must be done to ensure a facility can survive and ultimately thrive. These 11 questions help to indicate the stability and sustainability of a facility and its market.

Managers and governance bodies of all facilities should ask themselves these questions — and with honest answers — they can commence taking steps to seek help to get the facility back on track and prepare for the road ahead.  

1) What is the facility’s occupancy and payer mix and how does it compare to competitors?

Understanding a facility’s occupancy and payer mix compared to competitors can help determine the relative supply and demand of beds in the market. It can also identify if there is a problem with the facility or the market in general. This provides context to understanding the level of achievable opportunity for improvement.

2) How does the facility compare to the competition on quality, value, and price? … And importantly, do the local hospitals understand this?

There is publicly available information on quality outcomes per provider, and you can research the pricing structure of competitors. If your facility stands out, it is important that referral sources  — local hospitals and other health agencies — understand these differentiators.

3) What is the star rating of the skilled nursing facility? And how did the most recent state survey go?

The SNF star rating provides a quick test of quality and is ultimately what consumers will look at when they are assessing your facility. From a risk perspective, it is important to understand any deficiencies noted in the state survey. Compliance is not only important from a marketing perspective, but a failure to meet requirements can be critical to a facility’s very survival, and rightly so.

4) Within a portfolio company, which components (e.g., hospice vs. skilled nursing vs. assisted living) of the communities are doing well, and which are dependent on other services? What is driving the success or distress of these components?

Are there ways to streamline services and focus on what you are best at and what are most valuable to the bottom line? This is an important measure that can go a long way to securing a long-term future.

5) Has the state’s Medicaid program moved to a Medicaid managed care methodology, as so many states are beginning to do?

If so, we have seen this quickly lead to fewer admissions, payment delays and more denials. Needless to say, be aware and be prepared if this is happening in your state. You will need extra cash on hand to survive through any of these potential issues.

6) Is the facility in a state with tort reform?

Litigation risk varies widely by state. Understanding the laws of your state can go a long way in predicting your vulnerability. Actuary firms regularly conduct studies so you can stay-up-to-date on the risks in your state (for example AON Risk Solutions report).

7) What is the trend for the ‘Days in Accounts Receivable’ ratio?

Anything over 50 Days AR is worrisome — and the problem could derive from revenue recognition or collection issues. You must immediately take steps to rectify this, or your facility could quickly be in danger of running low on cash.

8) What is the debt structure?

Be aware of potential pressure that could come from lenders in the event the performance of the facility fails to meet debt covenants. If the facility has relatively low debt levels, it may be able to use debt to access the capital needed for development or refurbishment projects that would keep it competitive in the marketplace.

9) Is the facility’s workforce unionized?

In times of increased economic uncertainty, it is important to engage with unions so they are kept apprised of challenges and the company’s efforts to protect the employees and the organization as a whole.

10) Are there competitively negotiated agreements with large vendors, such as food, pharmacy and therapy?

Often, facilities use the same vendors for up to 20 years, just relying on annual contract renewals. However, tendering the facility’s most material contracts is extremely important in obtaining value for money and extracting efficiencies needed to maintain year-on-year profit margins.

11) Electronic or paper medical records?

Has your facility made the jump from paper to electronic records? While electronic is ultimately the only way to go, an implementation failure can bring the organization to its knees. It impacts the revenue cycle, operating efficiency and employee satisfaction. Be sure to have enough capital for the complete implementation, engage qualified IT professionals to lead the project, and give staff the training they need.

Asking these questions can provide the starting point to assess any facility. The answer to any single question could result in a change initiative that has the potential to transform the facility for the better.

Derek Pierce is managing director at Healthcare Management Partners (HMP), a turnaround and consulting firm that specializes in restructuring healthcare organizations that are experiencing current, or anticipated financial challenges. He has served as Chapter 11 Trustee, court-appointed receiver, chief financial officer, and chief restructuring officer on numerous matters.