Genesis is a particularly interesting company because it seems to have set out with a mission to provide good care. It believed that the market was the way to do this. Not only was their business philosophy flawed but the two objectives proved incompatible. Despite convincing evidence to the contrary it continued to maintain that government was to blame for their business failures and that they were providing excellent care. They attacked the critics who exposed their deficiencies, generating their own explanations to explain their criticisms.
Both the industry and the political
establishment accepted Genesis credibility at its face value, and
presumably also its explanation for the reports of poor care. Genesis
chairman and CEO, Michael R Walker maintained a more conservative
public profile than most corporate founders. The company maintains a
position as a credible and committed member of the community and so
is represented on health care inquiries where it speaks for the
profession. It has been well represented on bodies exploring health
care problems. It It is not accused of fraud, and it consequently
represents the credible side of the health care marketplace.
Genesis keeps a low profile and it has not been sought out and criticised by the press as much as some competitors. Information comes from press releases made by the company its subsidiaries and its critics. These are published through various internet groups such as PR Newswire. Genesis is referred to in market reviews, articles addressing aged care issues and when comparing it with other companies. Multiple articles describe instances of alleged poor care. The most valuable documentation of Genesis conduct are a series of well researched and well documented reviews of Genesis' business practices and standards of care carried out between 1997 and 1999 by the Service Employees International Union (SEIU) -- Rolling The Dice :: Quality Failures at Genesis ElderCare 1998 -- A House of Cards Sept 1998 -- Bad Deal :: Genesis ElderCare's Takeover of Multicare and Its Impact on Patient Care 1999 --
These reviews draw extensively on a variety of government inspections and other data comparing Genesis facilities with others. They also document the before and after inspection data when Genesis acquired facilities. The Service Employers International Union has produced accurate and well documented material in the past and accurately identified what was happening in Sun Healthcare homes as early as 1994/5. They have been attacked many times and every effort has been made to discredit them. Subsequent Industry wide investigations have repeatedly confirmed their objectivity. There can be little doubt about their accuracy and their reports make sad reading.
No one has written the sort of retrospective analyses which tell us so much about Sun healthcare, Vencor and Integrated Health Services when they entered bankruptcy. Genesis was the 6th company to enter bankruptcy and it was less newsworthy.
Growth:- Genesis is another group which focussed on rapid growth. It was founded in 1985 and grew to 7th largest with 35,016 beds by January 1999. Like Sun, Vencor and IHS it saw the opportunities presented by Medicare funding of post-acute care and seized them. It pursued diversification, integration and growth making several acquisitions in 1996.
Genesis specifically targeted managed care. It set out to dominate and control the aged care and post-acute marketplace in the states where it operated, concentrating its efforts there. Its objective was to make itself the only provider large enough to contract these services with large managed care corporations. In pursuit of these objectives it overextended itself and allegedly compromised care. The consequences of this was that anyone signing up with an HMO in these states would be locked into using Genesis facilities unless they paid a large additional premium. Given the disturbing information about the care provided this may have been most unfortunate for them.
Eldertrust an associated REIT shared a headquarters building with Genesis. It leased large numbers of facilities to Genesis; its primary customer. Its fortune was closely linked to Genesis.
An Unwise Purchase:- In spite of the introduction of the new Medicare funding system in 1997 Genesis continued its expansion. It spent US $1400 million to join with two other groups and buy the Multicare companies. The massive loans needed to accomplish this rendered Genesis dangerously vulnerable when its income stream decreased. To raise the money it entered into a deal with two partners which made it much more leveraged than its books suggested. It was particularly vulnerable to any economic downturn.
Doctor's Health:- During 1998 Genesis' income began to dry up and cracks started to appear. Doctor's Health, a Medical Group in which Genesis had a financial interest was lauded in the press as the future of managed care. By the end of 1997 it "was a very sick company". In October 98 Doctors Health declared bankruptcy. Genesis and other parties tried to raise a US $100 million rescue package but the bankruptcy court rejected this.
Response to Medicare Funding Changes:- In October 1998 Genesis tried to address its problems by launching Neighborcare Quest, an offshoot from its subsidiary Neighborcare. This was "a proprietary program developed by NeighborCare to address Medicare's new reimbursement method -- the prospective payment system (PPS)"
The Slippery Slope:- This had little effect and Genesis profits continued to fall and share prices plummeted. It restructured and reorganised its arrangements with its two Multicare partners, receiving a US $50 million injection. It sold off as many facilities as it could but was unable to find buyers in a market where nursing homes were a bad word and where lenders refused to finance prospective buyers. It went to its creditors and restructured its loans. Its credit rating was downgraded repeatedly and it was removed from Standard and Poor's rating system.
The Market Responds:- During this period Genesis continued to claim that it could turn the company around. It hotly denied that it might be forced into bankruptcy. The market was not persuaded and by November 1999 its share price had fallen by 93.4%. It did its best to maintain confidence by minimising its financial problems in its public statements.
Bankruptcy:- When bankruptcy finally came it seemed to come quite quickly. Genesis failed to meet its interest payments in March 2000. It obtained extensions but then filed for bankruptcy in June 2000. It was the 6th large aged care chain to do so. It was delisted from the stock exchange at the same time. HRC Manor Care, another nursing home giant had a large holding in Genesis and it did a $274 million write-down.
Probity:- The majority of press reports suggest that Genesis financial dealings were legal if ill advised. The nursing union were very disturbed by the company's business decisions. They created a web site which described the Multicare transaction as a complex and risky transaction. They suggested that US $1 billion in future liabilities related to the Multicare purchase were kept off Genesis' books rendering its current book value per share meaningless. They also claimed that Genesis lost $4.4 million through purchases on its own stock. Genesis bankruptcy is still recent and we do not know what will emerge when analysts get to work. The same nurses have been right about other corporations in the past.
Eldertrust:- Eldertrust was now also in trouble and at the last report it had renegotiated its arrangements with the bankrupt Genesis and its share price had fallen so low that it was threatened with delisting from the stock exchange.
Spokesperson for the Industry:- Despite Genesis bankruptcy, and a poor record of deficiencies in its homes Michael R Walker, Genesis chairman and CEO presented the case for the American Health Care Association before the house committee on ways and means subcommittee on health in Washington on 25th July 2000 urging a revision of the Medicare funding system to help the bankrupt companies. He blamed Genesis problems on the new funding system.
Cold water:- John Ransom, health care research director at Raymond James & Associates in St. Petersburg, laid it out to the senators step by step a short time later. He explained exactly how corporations like Genesis had overextended themselves and failed to consider the situation realistically.
He explained that more than 10 years ago a group of "entrepreneurial" nursing home executives saw the opportunity to grow. The system they introduced allowed them to bill $ 300 to $ 400 per day compared with the $ 70 to $ 100 per day paid by Medicaid.
"In the mid-'90s," Ransom said, "there was a sentiment in the financial community ... that, you know, generous financing from the federal government would continue, even under a cost-based system."
The companies miscalculated.
Genesis view of itself:- Genesis' promotes itself as providing a different and better sort of aged care which caters to patients individual needs. The company seems to have been founded on that vision and the belief that fulfilling that vision will bring marketplace success. While Genesis claims may have been no more than a marketing exercise my impression is that these aspirations were real and that the story of Genesis is the story of what happens when good intentions are confronted by the pressures of the marketplace. They were living the American Dream but it was just that.
Living out the Dream:- Genesis has devoted funds and made some genuine efforts to improve care and be innovative. However the sums are small in comparison with the funds devoted to growth and other marketplace activities. Success in the market place soon dominated other considerations.
Doctors Health:- Genesis shows signs of wanting to perform responsibly. It invested in Doctor's Health. This was a group of doctors who formed a corporation to genuinely put patients first within the context of managed care. This is a contradiction in terms and not surprisingly Doctors Health went under. Genesis even tried to rescue this company.
A Caring Company:- Genesis ran staff development programs for its nurses. It set up a system of councilors for elderly people, to help them make choices.
The latter would be a great way of inducing patients to enter the nursing homes and of vetting the "quality" of their insurance before doing so. I wonder if they thought this way. Perhaps they reasoned that they were providing a service and that it would pay for itself. While open to abuse there is no report of it being abused. In this it differs from allegations made about Tenet/NME, Columbia/HCA, Sun Healthcare, Vencor and IHS.
Genesis was among the first to introduce safety syringes, and at the end of 1999 set up a system of report cards on its facilities, available to the public. This may have been to counter adverse publicity but equally it may reflect a genuine belief that it was providing excellent care and needed to show this
There are no whistle blower actions or fraud investigations reported in the literature, suggesting more restraint that its competitors.
Fact or Fiction:- A number of questions then arise. Was Genesis actually doing what it claimed? Alternately are the convincing allegations of widespread understaffing and inferior care true? If so was Genesis deliberately deceptive or was it living in a world where words substituted for reality - a world of delusions.
Misconceptions about care by central corporate staff have been the rule rather than the exception. They simply don't want to know. Dave Lindorff wrote about this in his book "Marketplace Medicine" at the end on the 1980's. He described the marked disparity between the views and perceptions of corporate executives when contrasted with the views of those who dealt with their patients. The conduct of Tenet/NME, Columbia/HCA, Sun, IHS, Vencor and others has repeatedly confirmed this observation.
The Nurses and their Unions Criticise:- Genesis relationships with the nurses who staffed its facilities provide a very different picture. Genesis was involved in a protracted and bitter dispute with the nurses and their unions.
The nurses alleged that the company provided substandard care and claimed their own actions were both in their own and patients' interests. They produced some outstanding reviews of Genesis business conduct and the consequences for patients. They backed these with data obtained by government inspectors. The unions also claimed that nursing staff were unfairly fired, and that their legitimate union activities were frustrated by corporate employers.
Genesis Response:- Genesis responded aggressively by attacking the credibility of the figures provided by the nurses and criticising the nursing unions, claiming that they had ulterior and not very savoury motives. They did not counter with figures of their own. The attack is particularly wordy which suggests that it comes from the heart. They really did think this.
Who Should We Believe:- In considering what happened we need to remember that this was the same union which exposed substandard care in Sun Healthcare and other chains. They have been accurate on most occasions in the past. They argue their case meticulously using publicly available data. Sun Healthcare responded equally aggressively when the nurses publicised their failings. Sun clearly believed the allegations they made against the nurses. They were genuinely angry. Numerous studies now speak for the validity of the nurses complaints.
Press Reports Describing Care:- When we examine the press reports of patient misadventure, lawsuits, state penalties and the closure of homes we find that Genesis has its fair share. It is clear from several other sources that the corporate sector generally had staffing problems and performed poorly when standards of care were assessed. The available information does not show that Genesis differed significantly from other corporations, in the care it provided. This is hardly surprising. Had it provided significantly better care it would not have been competitive in the marketplace.
That Genesis believed that it was a good
corporate citizen, untarnished by fraud and poor care is reflected in
the leadership position it took when presenting the corporate
position at meetings and to congressional inquiries and hearings.
Genesis has remained "clean". There are no
reports of Qui Tam actions or of fraud investigations. Most of the
other bankrupt chains have faced government investigation. Genesis
instead claims that HRC Manor Care has defrauded it and has filed
suit against it.
Genesis is active politically. It operates both through groups representing the trade and independently, both federally and in the states it operates. Like others it cultivates those in power and employs those with political influence to lobby on its behalf.
Genesis Health Ventures and its partly owned Multicare merged and then exited bankruptcy together in October 2001, listing on the Nasdaq in February 2002. David Barr and Michael Walker (CEO), the architects of Genesis bankruptcy resigned soon after with massive termination bonuses. Walker became involved in lobbying for the industry.
Eldercare was seen to be a high risk business dragging the company down whereas its pharmacy business was very profitable. It set out to expand the latter by buying NCS HealthCare Inc. using script. NCS Healthcare accepted the bid but when the value of Genesis shares fell it reneged on the deal and sold itself to someone else.
At the same time Genesis sought to limit losses in aged care by intensive cost cutting, closing homes and selling all of its facilities in Florida and Illinois. It attempted to sell its nursing home business but was unable to find a buyer willing to pay a fair price. It eventually elected to spin of its nursing homes under the name Genesis HealthCare Corp. - in October 2003. Genesis will continue operating as a pharmacy business under the name NeighborCare Inc.
Walker's original vision of "Eldercare" as something different - a mission of actually caring for the elderly and making a profit by doing so - had gone up in smoke. The market had dictated its own priorities and Eldercare had become a liability to be dumped. Walker has moved on.
In analysing Genesis, IHS and Vencor's conduct I have adopted a different strategy. I have taken extracts from published material and allowed them to tell the story. I have simply written a short introduction and a few comments to give perspective and explain the context of some extracts.
The extracts on these pages are from copyright material. They are reproduced here for educational purposes and to stimulate public debate about the provision of health care. I consider this to be "fair use" and in the public interest. They should not be reproduced for commercial purposes.
Disclaimer: - The material in these pages is selective and not all-inclusive. The extracts do not necessarily reflect the full perspective of the original. Corporate denials and explanations have not been included. No claim is made that all of the matters referred to are true. The intention is to give the flavour of the material and an idea of the extent of the allegations.
Because of the volume I have divided them into rough subject areas in separate web pages. There seem to be a number of worlds, the world of the marketplace and the corporate staff, the world of the nursing homes, the nurses and patients, the hidden world of fraud, and the world of politics and political influence.
These web pages reflect these different
worlds. Which worlds are real and which worlds truly represent
society and its aspirations?