Impact of healthcare reforms
The US healthcare industry has been facing persistent headwinds from healthcare reforms. This pressure has negatively impacted Genesis Healthcare’s (GEN) operations in recent years. The impact has been most acute in the company’s inpatient and rehabilitation therapy segments.
In recent periods, Genesis Healthcare has implemented cost-mitigation strategies to improve its financial performance. These strategies have been successful to a certain degree. However, reductions in skilled patient admissions, shortening lengths of stay, rising wage inflation, and increasing capital costs due to higher lease payments have negatively affected the company’s performance.
In the first three quarters of 2017, Genesis Healthcare closed 28 skilled nursing facilities.
Credit risk concentration
Genesis Healthcare is exposed to its third-party customers’ credit risks. Many of these customers are in similar lines of business as Genesis Healthcare and face similar industry issues. This results in a concentration of risk for Genesis Healthcare.
The highest concentration of risk for Genesis Healthcare comes from its rehabilitation services business, in which it has over 200 customers, many of whom are chain operators. Genesis’s four largest healthcare rehabilitation customers made up $108.7 million, or 67%, of its outstanding receivables at the end of 3Q17. Moreover, a single customer made up 52% of its outstanding receivables at the end of 3Q17. In July and September 2017, two of the company’s significant customers filed for receivership. As a result, Genesis Healthcare recorded a noncash impairment charge of $35.6 million during the first three quarters of 2017.
In the next part of the series, we’ll take a look at Genesis Healthcare’s financial performance.