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WINNERS & LOSERS: SENIOR LIVING PROVIDERS ACQUIRE DISTRESSED DEALS

The <a href=”https://www.shepjch.com” target=”_blank”>acquisition of bankrupt or distressed deals</a> provides an opportunity for Senior Living Providers to grow and increase their presence in today’s competitive market.   Sweeping changes in the Healthcare industry as a whole and the recession has caused serious problems for many Assisted Living, Skilled Nursing and Continuing Care Retirement Communities often resulting in bankruptcies.  The <a href=”http://www.hhs.gov/healthcare/rights/” target=”_blank”>affordable Care Act</a> and the evolution of health care technologies are contributing factors.  Continuing care retirement communities in particular continue to face financial distress and challenges, which they’ve encountered ever since the economic crisis made it difficult for prospective residents to tap into their home equity.  Skilled Nursing facilities face performance challenges as they try to adapt to a post –Affordable Care Act and Culture Change world.<!–mep-nl–><!–mep-nl–>Providers of small, medium or large portfolios have suffered and either declared bankruptcy or have been forced to sell at below the market rate per bed and unit.  The losers, unfortunately for them, fall by the wayside, but their loss is a gain for those strong providers that have survived the downturn and are actively seeking growth in the present competitive and soaring Healthcare market. Providers that can adapt to the changes in the industry are emerging as winners.  <a href=”https://www.shepjch.com/Bankruptcy.html” target=”_blank”>Chapter 11 bankruptcy</a> is always an acquisition opportunity.   These properties are particularly attractive to smaller and mid-sized operators and owners that cannot compete with large-cap REIT’s.  The current soaring per unit prices of Facilities virtually eliminate acquisition by the small and mid-sized providers.<!–mep-nl–><!–mep-nl–>The acquisition of a bankrupt or distressed facility presents a challenge and demands due diligence on the part of the new owner or operator.  The all-cash deal, quick due diligence period, correction of all the problems that have caused the bankruptcy and the amount of capital expenditure to make the facility competitive in the market place are monumental considerations faced by a new owner/operator.<!–mep-nl–><!–mep-nl–>The turnaround from a distressed deal to a successful deal with an attractive EBITDA takes hard work, knowledge, capital and time.  For example, a facility purchased for five million, two million in capital improvements, rate increases, change is payor mix and new market branding can result in a fresh concept and energy  brought to the market.  In three to five years the “winner” could be the proud owner of a twelve million dollar facility which becomes attractive for a REIT acquisition.  In such a case it is evident that the result makes the acquisition of the distressed facility worthwhile.<!–mep-nl–><!–mep-nl–>New capital, demographics, technology and a culture change in the industry have accelerated the pace of the market.  In this rapidly changing, competitive and demanding Healthcare market the prudent Senior Living provider must take advantage of all growth opportunities.  The winners who have taken the opportunity to grow in number and deliver a higher quality of service to the increasing senior population makes the entire Healthcare Industry stronger.

3 Main Reasons Why Skilled Nursing Homes File Chapter 11 Bankruptcy

When Nursing Homes File Chapter 11 Bankruptcy

There are three primary reasons a skilled nursing home ends up filing for Chapter 11 Bankruptcy. Although not the most ideal situation for the owners, the employees, and their patients, stringent federal and state requirements, fines, and lawsuits are hampering facilities’ ability to yield a profitable nursing home that can still afford skilled staffing needed for quality care.

Strict Federal and State Requirements

New guidelines enforced by the government are requiring skilled nursing homes to make mandatory regulation investments. These investments include updated training or new certifications for direct aides and staff. Direct aides are required to meet minimum educational hour regulations. Staff member requirements have been elevated as well. Failure to adhere to these regulations results in significant fines and fees.

Lawsuits and Claims

We recently reported on 19 skilled nursing facilities that filed Chapter 11 in California. Country Villa Service Corp’s claimed a need to file Chapter 11 on individual assets in order to seek protection from a number of class action lawsuits filed against them. The lawsuits range from poor quality care of their patients to medication misuse and missing wages and hours for employees.

Filing Chapter 11 on these specific locations freezes their assets, making them unavailable to the plaintiffs should they win their cases and staves off creditors temporarily. It does not, however, affect all of Country Villa Service Corp’s operational facilities. CEO Stephen Reissman claimed in his telephone interview that the bankruptcy won’t affect operations or treatment of patients at the company’s nursing homes in question, either.

Medicare Withholdings and Fines from CMS

Smaller nursing home corporations financially unable to separate their operational holdings from their business holdings are in a more precarious situation should lawsuits or fines arise. According to official reports, Medicare spent almost $32 billion on skilled nursing facilities in 2011 through their Nursing Home Quality Control Program. With the sequestration resulting from budget cuts in FY2013, many nursing homes are claiming they still haven’t received payments from the Centers for Medicare & Medicaid Services (CMS) as required. Coupling that with what some nursing home owners are claiming that they have received erroneous fines from CMS, and as a result they are forced to declare bankruptcy.

In Iowa, All-American Care owner, Jerry Rhoades, claims his locally-owned operation has to file bankruptcy in part because of all the fee injunctions CMS placed upon his business. CMS’s audits of the company yielded these results and fines nearing $100,000. Rhoades claims the fees have crippled their business and Chapter 11 was the only way out.

If you are considering filing Chapter 11 Bankruptcy, there may be other options available to you. Talk to a knowledgeable skilled nursing brokerage about these options. A reputable brokerage will have a large pool of qualified buyers and participants either in a 1031 Exchange, straight sale or sale and leaseback transaction. Check back frequently for more information on this, and related, subjects.