After blaming its acquisition of HCR ManorCare for a significant annual loss in 2018, non-profit health system ProMedica credited its new skilled nursing assets for helping to offset a rough first quarter for its insurance business.
The Toledo, Ohio-based acute- and post-acute giant logged a net loss of $9.8 million in the first quarter of 2019 — $7.1 million higher than the hit ProMedica took over the same period in 2019.
“Nearly all of the increase was due to the negative operating performance of ProMedica Insurance Company of $37.9 million, offset by the improvements in operating income of HCR ManorCare and the Providers of $35.4 million,” the company wrote in its revised quarterly report, dated June 12.
Modern Healthcare first reported on the updated quarterly earnings late Thursday.
ProMedica generated operating income of $18 million from its post-acute business line, which includes more than 160 ManorCare skilled nursing facilities; that’s a significant turnaround from a $2.5 million loss over the same span last year.
But Paramount, the non-profit’s insurance arm, reported operating losses of $28.5 million during the first quarter after making $9.4 million in the first three months of 2018. So far this year, the company as a whole saw a $66.9 million increase in medical expenses, which officials attributed to a higher medical loss ratio for the Paramount business line.
The largest provider-sponsored plan in Ohio, Paramount covers about 334,000 people, with the vast majority enrolled in the company’s managed Medicaid plan, Paramount Advantage. Lori Johnston, president of the Paramount division, blamed Medicaid expansion in the Buckeye State for the massive jump in expenses in a statement provided to Modern Healthcare.
“In 2018, all participating insurers started seeing a sizable increase in the acuity, and therefore, the cost, in the Medicaid expansion population,” Johnston told the publication. “That statewide issue has presented challenges for all five plans.”
Post-acute care services now account for 46% of the company’s total revenues, dwarfing its other business lines.
A spokesperson for ManorCare did not respond to a request for further comment on the results as of press time.
ManorCare’s role as a financial savior for the health system represents a change in the narrative around ProMedica and its major expansion into post-acute care. Back in March, the non-profit reported losing $70 million in 2018, with the skilled nursing acquisition partially to blame.
“Total operating expenses increased by $1.7 billion, with nearly $1.3 billion related to acquisitions of HCR ManorCare and a rural hospital,” ProMedica reported at the time. “Provider expenses increased $53 million related to higher staffing costs, including contracted labor.”
By contrast, the system had made a $134.5 million profit in 2017.
The system also suffered a pair of credit downgrades from ratings agencies Standard & Poor’s and Moody’s in the immediate wake of the deal, with concerns about the long-term viability of SNF care underscoring the drops.
“HCR ManorCare provides post-acute care services — an industry that has experienced significant operating pressures, particularly about reimbursement and occupancy, in recent years,” S&P wrote last August in its notice announcing ProMedica’s downgrade from A+ to BBB.
That said, the ink on the deal still hasn’t quite dried, particularly given its significant scope. ProMedica, along with its partner Welltower Inc. (NYSE: WELL), only closed on the $4.4 billion transaction in late July 2018; under the deal’s unique structure, real estate investment trust (REIT) Welltower acquired all of ManorCare’s properties, with ProMedica and Welltower buying the operations in an 80-20 joint venture.
As of May, ProMedica was still in the midst of implementing a variety of initiatives designed at improving the newly merged operations, including a $70 million capital plan and the full roll-out of an electronic medical record (EMR) system that had previously been hamstrung under ManorCare’s former private-equity ownership.
Steve Cavanaugh, the former ManorCare president who has since been promoted to chief financial officer of the whole ProMedica network, told SNN at the time that his company was a routinely strong performer that had simply been held back by capital restraints.
“Because of our capital structure situation — and really, we had operations, if you looked at them, we had a profitable business,” Cavanaugh told SNN. “Our margins were probably better than the vast majority of participants in the industry, our payer mix was better … we just had a ton of leverage, and because of being a privately owned company and the changes that happened with reimbursement, we were just not in a position to reinvest in the business.”