The 60-to-39 party-line vote, on the 25th straight day of debate on the legislation, brings Democrats closer to a goal they have pursued for decades and brings President Obama a step closer to success in his signature domestic initiative. When the roll was called, with Vice President Joseph Biden Jr. presiding, it was the first time the Senate had gathered for a vote on Christmas Eve since 1895.  

If the bill becomes law, it would be a milestone in social policy, comparable to the creation of Social security 1935 and Medicare in 1965.  The real challenge now is to get the House of Representatives view of the plan to come in alignment with the current bill on the table. It still remains lots of fall out of how this law will end up. I wonder after the next election how democrats will be re-elected again? More changes to come.   

The Office of the Congressional Budget provided some interesting and useful information:  

 “The federal budget is on an unsustainable path, primarily because of the rising cost of health care and the aging of the U.S. population”.  

Projected Federal Spending Under One Fiscal Scenario
(Percentage of gross domestic product)
    

 (Percentage of gross domestic product)
  

Health care reform is currently the central issue of Congress, driven especially by growing concern about the number of people without insurance coverage and continual increases in cost. As Members of Senate and House work on comprehensive proposals, analyzing them and helping the Congress understand their effects are a top priority for Congressional Budget Office.  

Do Americans really need Healthcare Reform? What is your opinion?  

Thank you for viewing my weekly blog and wishing everyone continued success.  

Best wishes,  

Michael Sandnes 

The AHA survey, released Wednesday, shows that 34 percent of hospitals expect to report losses in the first half of 2009, up from 29 percent for the same period last year, and indicators of the ability of hospitals to meet their financial obligations are slipping.

Hospitals report that more patients are appearing in emergency rooms without insurance, fewer patients are seeking elective services, and nine in 10 hospitals have had to make cutbacks to address economic concerns. This is largest reason why so many Healthcare Systems are in facing financial distress. Hospitals  number challenge in 2010 will be to cut expenses and overhead.

Other results of the survey include:

• A higher proportion of patients are unable to pay for care and many hospitals are seeing more patients covered by Medicaid and other public programs for low income populations.
• Community need for subsidized services such as clinics, screenings and outreach is increasing even as charitable contributions are down for many hospitals.
• More than half of the hospitals surveyed have reduced staff.
• Eight in 10 have cut administrative expenses.
• One in five have reduced services that communities depend on, including behavioral health, post acute care, clinic, patient education and other services that require subsidies.

Despite the actions hospitals have taken to weather the economic storm, seven of 10 hospitals reported a decline in overall financial health which will impact their ability to care for their communities, the AHA’s study said.

Some hospitals reported they are beginning to see improvement in the capital situation since December of last year. Yet since the beginning of 2008, seven in 10 hospitals have cut capital spending for facility upgrades, clinical technology and/or information technology.

Eight in 10 hospitals report an increase in the degree to which physicians are seeking the financial support of hospitals including on-call pay and/or employment.

The survey was based on surveys sent to all community hospital CEOs in August 2009. Data was collected through Sept. 8, with 768 responses received. The AHA said respondents were broadly representative of community hospitals.

Until next week happy Holidays and a prosperous New Year 2010!

The proposed $1 trillion Healthcare overhaul that the Senate bill  is under  fire would save Americans only 1 percentage point in total annual savings for total Healthcare expenditures spent by the top two U.S backed health programs. And may trim the gains in private spending  as well, the White House Council of Economic Advisers said  a report released today. The senate is optimistic about continuing progress to strengthen the bill cost-containment provisions. Michael Sandnes commented that he thought that many Americans need Healthcare reform but more work needs to be done by the government in employee benefits and plan cost savings.

Senate Democrats Likely to Drop Medicare Expansion 

Senate Democratic leaders  recently said  that they were prepared to drop a proposed expansion of Medicare and make other changes in sweeping health legislation as they tried to rally their caucus in hopes of passing the bill before Christmas.

This is the latest update on what is happening in Washington DC. Let’s all keep our hopes up as the law makers of our country work though these  tuff issues which will affect everyone as  history is made.  

Wishing everyone continued sucess!

Consider Outside Help:

 Nursing facilities may have a longer journey to recovery than other long term care housing sectors, but there are some things owners and operators can do to prevent a major financial crisis. Many providers at various stages of distress are looking to outside counsel for assistance and solutions. Management consultant firms can serve as advisors for exploring options that could include seeking an exit strategy, securing funding for an operation turnaround, or selling properties. When selecting a consultant, it is vital to ensure that the company possesses the necessary industry experience and expertise to resolve a range of issues—and do it quickly. A reputable advisory firm should be expected to gain a general understanding of the business operations, with the intent to recommend improvements were warranted. This could include a review of operating expenses, financial statements, contract labor expenses, overtime, staffing patterns, recruitment plans, and corporate leadership.

Consultant firms should also be expected to do the following:

■ Review the processes for developing and executing marketing programs that lead to referral generation;  Review and assess the strength of the operation’s internal controls, including a review of selected operating and financial reports such as overhead costs, supplies, leased equipment, labor costs, and alternative revenue sources; ■ Interview key management personnel and perform an organizational evaluation; ■ Review and assess the organizational and management reporting structure; ■ Prepare a report that includes observations and recommendations; ■ Conduct conference calls during the field work in order to keep the lender apprised of progress so that no surprises arise; and ■ Meet with representatives of the company, as appropriate, to review the findings, offer recommendations, and begin the implementation of operational strategies.

 Write A Game Plan:

 Once the evaluation is complete, management may decide to forward the findings to the lender in order to keep the lender apprised of any issues and plans to improve operations and profitability. Many lenders—as a result of the current state of the lending environment—truly appreciate positive communication from clients, especially if they are in a distressed situation. Lenders also appreciate a game plan aimed at moving the organization forward. This may involve a number of options, such as an exit strategy and the search for additional funding to turn the operations around in preparation for a sale. A consultant should have the insight to spearhead this process, creating a Michael Sandnes is the managing director of Healthcare Practice at Executive Sounding Board Associates, a management company that works with distressed companies, and serves as the program chair of the Chesapeake Turnaround Management Association. Lenders also appreciate a game plan aimed at moving the organization forward. 78 Provider • October 2009 lender requested that a financial advisory firm perform a viability assessment. The consulting firm examined the management capabilities, clinical and operational systems, quality indicators, environmental issues, billing and collection practices, marketing referrals, medical staff, and survey history. After a seven-day evaluation of the facilities, the consultant completed a report with some tough recommendations for the new owner. Based on the report, the lender decided that the owner lacked the experience and resources internally to accomplish a turnaround. The advisory firm, as a result, found an interested party, who, by agreeing to purchase the facilities, would provide financing or arrange for a management agreement. This solution presented a “win-win” situation for the owner. But, in the end, the owner chose to sell the win for both the company and the lender. More and more lenders view this as the preferred choice over bankruptcy reorganization.

A Case In Point:

A leading bank lender for senior living and long term care companies went through a detailed review of its health care portfolio and found out that one of its client organizations, a chain of five continuing care retirement communities (CCRCs), had entered into a new venture to purchase two free-standing 250-bed nursing facilities in northern Pennsylvania and New York state. The two facilities were cross-collateralized with the five centers’ real estate value, but they were very distressed operations and in great need of turnaround services. The lender issued a default notice because of breach loan covenants and entities in order to focus on his five other facilities. Increased Chapter 11 filings could be a common occurrence in high-cost health care delivery states like New York, New Jersey, California, Texas, and Hawaii. The nursing facility industry has experienced its up and downs, but reimbursement will continue to decrease and affect margins. The recent bankruptcy filing by Haven Elder-care, with 55 locations in three states, is an example. The assisted living care industry will continue to exist under competitive pressure for private-pay patients and increased market competition. Sunrise Senior Living, McLean, Va., is an example of a company experiencing increased competition and tight cash flow, which affects margins. Expect continued growth and opportunities in CCRCs. The ideal model is a small nursing facility, assisted living center, apartments, and outpatient center all offered on one large campus.

 Demand Will Return:

 The demand for skilled nursing and assisted living facilities will remain high as result of aging baby boomers. This will create enormous opportunity for skilled and savvy long term care executives to create new business models that address this need. There is no shortage of operators wanting to expand market share and business lines, which will create high demand for acquiring more facilities and services. The present environment is certainly not for the faint of heart. But acknowledging the adverse conditions and identifying opportunities to turn around the situation offer hope. Despite the turmoil, savvy and experienced long term care providers will not only survive but thrive in 2009 and 2010. ■

The situation is dire for many long-term care companies, whose struggles have only been compounded by the current state of the credit market and their poor “credit worthiness” in the eyes of lenders.   

Many long-term care executives, directors and shareholders are already losing sleep these days over a plethora of problems: growing competition from investor-owned chains; 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; the fact that nearly 47 million Americans remain dependent on the health system, yet are uninsured; and the continuation of federal and state pressures to cut Medicare and Medicaid reimbursements for an increasingly aging and unhealthy population.

Over the next few years, the news is unlikely to grow much better.  Many senior living care industry experts expect a period of prolonged difficulty characterized by increased revenue uncertainty and cost pressures, reduced access to capital, and a continued erosion of public and political support. Coupled with the ongoing operational challenges of aging physical plants and equipment, and the environmental challenges mentioned above, there is growing concern for the health of the industry and its long-term ability to meet the health care needs of our communities, especially those of our most vulnerable citizens: the poor and underserved.

The continued cost to implement and mount grassroots lobbying efforts in Washington to support these efforts will become very important and require financial resources that are not presently available.  As a result, indications are that many mom and pop operations and small nursing home/assisted living center chains will be forced to file for federal bankruptcy protection. 

A Case in Point

A leading bank lender for senior living and long term care companies went through a detailed review of its health care portfolio and found out that one of its client organizations – a chain of five Continuing Retirement Care Centers – had entered into a new venture to purchase two free standing 250-bed nursing homes in northern Pennsylvania and New York State. The two facilities were cross-collaterized with the five centers’ real estate value. The two nursing homes were very distressed operations and in great need of turnaround services. The lender finally had to issue a default notice because of breach loan covenants and requested that a financial advisory firm perform a viability assessment.

The consulting firm examined the management capabilities, clinical and operational systems, quality indicators, environmental issues, billing and collections practices, marketing referrals, medical staff and survey history. After a 5-day evaluation of the two facilities, the consultant completed a report with some tough recommendations for the owner.  Based on this report, the lender decided that the owner lacked the experience and resources internally to accomplish a turnaround. The advisory firm, as a result, found an interested party who, by agreeing to purchase the facilities, provide financing, or arrange for a management agreement, offered a “win win” situation for the owner. The owner eventually chose to sell the entities in order to focus on his five other facilities.   

Value-added Solutions performed by Healthcare Management Consultant firm.

Many long-term care facilities at various stages of distress are being forced into the position of seeking outside counsel.  An effective management consultant advisory firm will have the necessary industry experience and expertise to resolve a range of issues, and to do it quickly while the clock continues to tick. 

During a limited assessment engagement, an advisory firm should be expected to assess an organization’s current and prospective state of performance, its capacity for change and develop a turnaround plan.  More specifically, this will include a need to:   

• Gain 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.  This would include a review of business operations and operating expenses, financial statements, contact labor expenses, overtime, staffing patterns, recruitment plans and corporate leadership.
• Determine the need for a financial turnaround based around the following:  who should be involved in the process, early warning signs of pending financial difficulties, and strategy and game plan development.
• Identify core assumptions (game breakers).  This will include game plan execution, getting stakeholder participation in the turnaround plan, holding discussions with potential lenders and exploring credit market prognosis, examining quality of care issues, and determining what needs to be done in the prospect of bankruptcy or developing contingency plans.
• Review the processes for developing and executing marketing programs for generating referrals. 
• Review and assess financial and expense control so as to evaluate and confirm the strength of internal controls. This would include a review of selected operating and financial reports, including overhead costs, supplies, leased equipment, labor, per patient day (PPD) and staffing schedules. Staff comprises about 70 percent of the operating expenses.
• Interview key management personnel and perform organizational evaluation.
• Review and assess organizational structure and management reporting.
• Prepare a report in outline form with observations and recommendations.
• Conduct conference calls during the field work in order to keep the lender apprised of progress so that no surprises arise.
• Meet with representatives of the company as appropriate to review the findings, offer recommendations and begin the implementation of operational strategies.

After the evaluation is completed the lender will review all the necessary information that needs to be developed for a game plan in moving the organization forward. That may involve a number of options, such as an exit strategy and finding additional funding to turn the operations around with outside management oversight in preparation for a sale. A consulting firm should have the insight to spearhead this process, creating a win for both the company and the lender.

What is the industry’s short-term future and will companies seek chapter 11 and reorganization? 

Increased chapter 11 filings will be a common occurrence in high cost provider states like New York, New Jersey, California, Texas and Hawaii, which are among the highest in healthcare delivery cost. 

The nursing home industry has experienced its up and downs, but reimbursement will continue to decrease and affect margins. The recent bankruptcy filing by Haven Eldercare, with 55 locations in three states, is an example of this. Additionally, The Brighton Health Group, a small chain of five facilities located in Pennsylvania, filed for Chapter 11 in mid-September as a result of increased cost and reimbursement pressures. The nursing home sector has many aged facilities that lack the resources to update their buildings. The assisted living care industry will continue to exist under competitive pressures for private pay patients and increased market competition.  Sunrise Assisted Living Centers is an example of a company experiencing increased competition and tight cash flow which affects margins.

Expect continued troubles and more distressed opportunities in CCRCs marketplace as result  of depressed real estate values. The ideal model is a small nursing home, assisted living center, apartments and outpatient center all offered on one large campus.   LTACs, which in the recent past experienced declining reimbursement rates and cutbacks, can be expected to make a slight turnaround and continue to be in demand. CMS has changed its view of them, favoring the patient care model and short stay.

The present environmental is certainly not for the meek of heart.  Yet, all is not lost.  Acknowledging the adverse conditions and identifying opportunities to turn around the situation offers hope.  Despite the turmoil, savvy and experienced health care leaders will not only survive but thrive in 2009, often with management consultant firms assuming vital roles. 

Michael Sandnes is the Managing Director, Healthcare Practice, at Executive Sounding Board Associates Inc, a management company that works with distressed companies.   He can be reached at michaelsandnes@gmail.com.

Economy takes a down turn, credit becomes scarce and investors start to run away. 

Three hundred fifty billion dollars later.   That’s the amount the health-care industry spends each year just to submit and process claims. And, that’s during good or bad times. Add to this cumbersome work flows, inefficient processes and a changing landscape marked by increasing out-of-pocket costs for patients and rising operating costs for providers.

In and of itself, this wouldn’t bode well for the industry at large.  For Long Term Care Industry, Continuing Care Retirement Communities (CCRCs) included, prospects are particularly troubling.  It begins with the prospect of poor “credit worthiness” in the eyes of lenders, and continues through a litany of potential obstacles that 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 and  nearly 47 million Americans who remain dependent on the health system and yet are uninsured, and the reality of a rapidly-growing aging population. Plus the add fact that the decline in real estate values have affected affordability of services for customers.

Government plans to invest billions over the next 10 to 2o years to fix a broken system.  

Health-care consultant firms have never seen so much distressed opportunity – in some cases it may be too late to save the sneaking ship.

Turnaround consulting firms are often brought in when it’s too late – long after the horse has left the barn.  Distressed businesses often wait until the cash has dried up and lenders have lost all patience for non-compliance of loan payments, and so 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.

Over the next few years, many experts in the senior living care industry expect a period of prolonged difficulty, characterized by increased revenue uncertainty and many cost pressures, reduced access to capital, and a continued erosion of public and political support. Coupled with the other challenges mentioned earlier, there is growing concern for the health of our industry and our long-term ability to meet the health care needs of our communities, especially those of our most vulnerable citizens: the poor and underserved. What happened to the Baby Boomers!

 Value added solutions can be performed by an effective healthcare management consultant firm.

The health-care industry is an enormously large sector and not all management consultant health-care firms have the working knowledge specific to the senior living care arena. This is a very important factor to consider for companies seeking assistance and third-party verification.

An effective management consultant advisory firm will have the experience and expertise to resolve these types of issues and will do so quickly. Such a firm 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. An example is that many times these situations, once the evaluation is completed; end up as corporate finance transactions

Since this is not always the case, increased chapter 11 filings will be a common occurrence in such high cost provider states as New York, New Jersey, California, Texas and Hawaii, which are among the highest in health-care delivery cost. 

This 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 health care leaders will not only survive but thrive in 2009 and management consultant firms will play a vital role. 

Michael Sandnes is Director of Health-care and Practice leader, at Executive Sounding Board Associates. Based in Baltimore, he can be reached at michaelsandnes@gmail.com