Publicly traded Kindred Healthcare in February reported some bleak financial results for Q4 of 2011, with losses of $72.8 million (compared to a profit of $19.7 million in Q4 of 2011). It revised its 2012 earnings forecast down by $0.30 per share, and announced that it would not renew it lease with Ventas for 64 facilities, including 54 skilled nursing facilities.
Kindred associated the results and the changes, at least in large part, to the notorious 11.1% Medicare reimbursement cuts that went into effect October 1, 2011. In the announcement Kindred said that the "initial quarter under new RUGs IV and rehabilitation therapy rule changes [was] more challenging than expected," further projecting the annual impact to be $150 million.
“Our 2012 earnings outlook reflects a more difficult than expected operating environment under the recent RUGs IV and rehabilitation therapy Medicare rule changes," said Paul J. Diaz, Kinrdred's president and CEO. "While we continue to believe that federal policymakers have over-reached in their attempt to adjust the RUGs IV rules, we must intensify our efforts to adjust our operations while still maintaining the quality of our services.”
But did Kindred really lose $72 million dollars in Q4 2011 solely because of the October 1 Medicare cuts? In a word, no.
$102 million of Kindred's Q4 2011 reported losses were "impairment charges." That's when the book value of certain company assets exceeds the actual value, and the company adjusts the books and takes a loss on the difference.
Kindred attributed $54 million of the impairment charges to "certain hospital and nursing and rehabilitation center intangible assets," which is a large but pretty typical write down by a large company in assessing impairment. The company wrote off another $2 million in what it termed "leasehold improvements." Kindred doesn't attribute either charge to Medicare reimbursement changes, nor is there any indication they would be.
Kindred attributed another $46 million to goodwill impairment charges to "the worse than expected decline in operating results in the Company’s rehabilitation division related to Medicare reimbursement changes that became effective on October 1, 2011."
This almost certainly reflects the high-profile 2011 acquisition of RehabCare, and it means this: At the end of the year, Kindred assessed the intangible "goodwill" value of RehabCare to be about $46 million less than what Kindred paid for it. That diminished value could well be attributable to observed and projected decreases in reimbursements.
But that's much, much different than saying the Medicare reimbursement cuts diminished Kindred's revenue so much in Q4 that it lost $72.4 million. That's not remotely the case, but as the market remains gripped with panic about cuts, it probably is the unfortunate perception.
The fact is, operationally, not counting the impairment charges, Kindred did quite well by many measures in Q4 2011 and on the year:
- Record Q4 revenue of $1.5 billion, up 36 percent compared to Q4 of 2010
- Record annual revenue of $5.5 billion, up 27 percent from $4.4 billion in 2011
- Operating income grew 25% in Q4 2011 compared to Q4 2010, up to $200 million
Overall operational profits and earnings per share were still down from the year before, but Kindred is hardly limping toward the grave based on these financials. But what about the lease bailout on the 64 Ventas facilities? Diaz explains the reasoning:
"While in general the individual Expiring Facilities are good assets, these bundles as a whole do not satisfy our targeted investment returns or fit within our strategic operating plan. The majority of the Expiring Facilities are outside our cluster markets and many of the nursing and rehabilitation centers that are predominantly chronic care and Medicaid dependent are not well suited for our higher acuity, transitional care strategy."
I would argue that every condition that guided this decision existed before October 1, 2011. The facilities aren't within Kindred's strategic geographical markets. Many are chronic and Medicaid dependent facilities--facilities that have been challenging to maintain profitably for years. It's fair to suggest that it's scary for the industry to see a huge player such as Kindred shed financially challenging high-Medicaid facilities. But that has nothing to do with last year's Medicare rehab reimbursement cuts.
NEXT POST: What about the impact on providers besides Kindred?
Recent Comments