After the non-profit ProMedica Health System took over the operations of HCR ManorCare in a blockbuster deal last year, the skilled nursing entity continues to help improve the system’s shaky financial results.
The Toledo, Ohio-based ProMedica reported an operating loss of $102.8 million for its ProMedica Insurance Corporation arm for the nine-month period ending September 30, compared with operating income of $26.8 million in the same nine-month period in 2018.
The company’s post-acute arm, meanwhile, generated an operating income of $57.54 million for the nine months ending September 30.
“The losses in the insurance division were attributable exclusively to the Paramount Advantage (Medicaid) product line,” the company said in its quarterly update. “All of Paramount’s other offerings were profitable on a year-to-date basis.”
Part of the problem could be attributed to increased use of services in “the adult extension population,” according to ProMedica, which was partly the reason the Ohio Department of Medicaid provided an 8% rate increase in June, retroactive to January 1.
Paramount is still working with the state to address “several other issues” — which were not specified — that might be contributing to losses, as well as assessing strategic options to deal with the red ink.
“Operating income of HCR ManorCare of $60 million and improvements in the performance of the Providers [segment] of $44.7 million between years, helped to improve results for the nine months ended September 30, 2019,” ProMedica noted.
Paramount would consider leaving the state’s Medicaid program if rates do not improve, ProMedica CFO Steve Cavanaugh said on an investor call that was covered by Modern Healthcare.
The plan covers approximately 323,000 lives in Ohio and several counties in Michigan. It is the largest provider-sponsored health plan in Ohio, and through its Paramount Advantage subsidiary provides statewide managed care services, according to the company’s quarterly disclosure for the period ending September 30.
ProMedica’s insurance division accounted for about 27% of operating revenue for the nine months ending September 30, while the provider division accounted for 29% and the post-acute divisionfor 44%.
It’s not the first time the Toledo, Ohio-based ProMedica has credited ManorCare with helping it offset challenges related to the insurance arm. In the first quarter of this year, the health system said ManorCare helped offset a negative operating performance by the ProMedica Insurance Company.
ProMedica acquired the operations of ManorCare in a major three-way deal with the Toledo, Ohio-based real estate investment trust (REIT) Welltower Inc. (NYSE: WELL), which also saw the REIT and the health system purchase the real estate in a joint venture.
At the end of 2018, Cavanaugh had expressed the hope that ProMedica would use its experience with Paramount patients as a sort of “test kitchen” to let the SNF provider fine-tune new payment strategies before shopping them to other payers.
“Now we have an opportunity to innovate and try new models, where we’re pretty much doing it with house money, doing it within our own organization,” he said during a panel discussion at Welltower’s investor presentation last year. “If we have some success delivering models to get better outcomes and lower costs, that’s that something we can then take and export to other parts of our business.”
ProMedica had 171 SNFs and 54 assisted living facilities for the period ending September 30. Skilled nursing occupancy is at about 85%, compared with 84% occupancy in the year before, while Medicare revenue fell from $472.52 million during the first nine months of 2018 to $413.21 million in the nine months ending September 30.
Medicaid revenue, by contrast, rose from $665.84 million in the nine months ending September 30, 2018 to $691.01 million in the same period this year.
ProMedica was recently downgraded by Moody’s from Baa1 to Baa3, with a negative outlook; Standard & Poor’s cut its rating for ProMedica from A+ to BBB in 2018. Though Welltower executives on a recent earnings call pointed to several statistics showing the system’s financial stability, including $1.5 billion in cash reserves, the ratings do factor into the lease agreements: ProMedica cannot receive lower than investment-grade ratings from two different agencies.
But Welltower CEO Tom DeRosa emphasized that the requirement is a means of protecting shareholders at the REIT, and not necessarily an automatic killswitch.
“We have the right to bring them to the table,” he said on the call at the time. “It’s not a gun pointed at their head.”