Executive Decisions with James V. McKeon

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In December, Genesis Health Ventures spun off its eldercare and rehabilitation businesses into Genesis HealthCare Corp. James McKeon, chief financial officer for the separately traded public company, said things are going well thus far.

Q. The financial results from the most recent quarter look promising. To what factors do you credit these solid results?
A. We are encouraged by a stabilizing reimbursement environment, led by the recovery of a portion of the so-called "Medicare cliff" funding, as well as the postponement of the rehabilitation therapy caps. At the same time, we continue to focus on providing high quality care while beginning to identify and implement efficiencies and improve our balance sheet.

Q. Just how dramatically did Medicare patient and funding increases help the bottom line?
A. Growth was principally driven by an increase in Medicare rates per patient day, which rose 11.8% to $347 (compared to $310 a year earlier). These revenues increased as a result of the October 1, 2003, annual market basket adjustment and the implementation of a 3.26% rate adjustment to correct previous forecast errors, as well as higher Medicare patient acuity and census.
In addition, revenue and Earnings Before Interest, Taxes, Depreciation, and Amortization (EBITDA) grew $12.2 million and half a million dollars, respectively. This was attributed to the step acquisition of six eldercare centers, principally as a result of the ElderTrust transactions, that were not included in the comparable period in the prior year.

Q. What role did labor costs play in the improved quarterly results?
A. We reduced our reliance on costly temporary nurses, reducing agency labor costs by 23.6% on a per patient day basis from the comparable period in the prior year.
Agency labor on a per patient day basis represented 6.6% of total nursing labor costs in the first quarter of 2004 compared with 9.0% in the same period in the prior year.
Aggregate nursing labor costs grew 4.4% per patient day in the quarter ended December 31, 2003, vs. the comparable period in the prior year.

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