Sen. Elizabeth Warren this week wrote another letter to executives at Genesis HealthCare (NYSE: GEN), raising concerns about the nursing home giant’s recent deal to significantly restructure its operations in part through a $50 million private equity investment.
Warren, a Massachusetts Democrat, made headlines in late January when she publicly questioned the operator’s decision to award former CEO George Hager a $5.2 million retention bonus in light of COVID-19 deaths at Genesis facilities, as well as its receipt of hundreds of millions in federal relief.
The senator on Wednesday also promised to launch an investigation into for-profit nursing homes and those under private equity ownership during a lengthy Senate Finance Committee hearing on COVID-19 in long-term care.
“The next time there’s a pandemic, seniors shouldn’t be stuck in subpar institutions run by greedy CEOs and vulture firms in order to make a quick buck,” Warren said. “Congress needs to act now before tragedy strikes again.”
Since Warren’s January letter, the Kennett Square, Pa.-based operator announced that it will voluntarily remove itself from the New York Stock Exchange and restructure in part through the $50 million debt investment from ReGen Healthcare. The transaction will give ReGen a 25% ownership stake in Genesis; the firm has the option to increase that figure to 43% through an additional $25 million injection.
As part of the restructuring, Genesis landlord Welltower Inc. (NYSE: WELL) will transition 51 of the provider’s nursing homes to new operators, largely ending the decade-long relationship between the real estate investment trust (REIT) and Genesis.
Warren — whose criticism of private equity investment in nursing facilities stretches back before the pandemic — referenced the restructuring in asking for more information about the company’s finances and decision-making regarding the Hager bonus in the most recent letter.
“The unseemly decision to reward Mr. Hager for his ‘vital and effective leadership’ deserves additional scrutiny given that, just last week, the company announced a major restructuring that includes the termination of dozens of leases (leading to questions about whether residents would be forced to move, or who would be responsible for their care); the sale of a large percentage of the company to private equity firm ReGen Healthcare, and the delisting of its Class A common stock from the New York Stock Exchange,” Warren wrote in the letter, addressed to CEO Robert Fish and board chairman David Harrington.
The March letter serves as a follow-up to Genesis, which initially responded to the January request by asserting that Warren’s criticisms of its performance during the coronavirus crisis were based on inaccurate media reports.
The senator released Genesis’s February 10 reply to the first letter, in which the operator denied that executive bonuses had any impact on its ability to cover COVID-related costs.
“Genesis is greatly appreciative of the government support its facilities have received, and has followed and will follow all applicable conditions of those funds,” the company wrote in reply to Warren. “In particular, all CARES Act funds received by Genesis will be allocated to expenses and lost revenue related to the coronavirus in accordance with the dictates of the law, and such expenses cannot and will not include executive compensation costs.”
The company also argued that given its concentration of buildings in the Northeast, which experienced the early peaks of the crisis, that its nursing homes had lower death rates relative to similarly situated facilities.
Warren this week responded by demanding more information about Hager’s compensation structure, as well as how the restructuring and Welltower exit will affect residents and staff of its facilities — and its ability to repay the $248 million in state and federal loans and deferred payments that Genesis received during the crisis.
“In short, it appears that Mr. Hager walked away with an extraordinarily rich compensation package, leaving behind thousands of dead and sick nursing home residents and staff and a company in financial ruin despite being bailed out by hundreds of millions of dollars in taxpayer funds,” Warren wrote. “Your residents, your shareholders, and the American public deserve an explanation for this greed and the tragedy that preceded it.”
The senator also questioned Hager’s financial stewardship of the company in the months leading up to the restructuring.
“Your letter provides no indication that the company was holding its own CEO responsible for the near-bankruptcy it faced under his leadership,” Warren wrote. “In fact, the information provided in your letter indicates that Mr. Hager was the beneficiary of hundreds of millions of dollars in taxpayer aid that went to the company — which he was still unable to keep out of dire financial straits.”
In a lengthy Wednesday statement responding to the March letter, Genesis pointed to data from consulting firm Avalere Health indicating that the company’s facilities had lower death rates than its peers, and defended its performance given lack of early access to testing and sky-high costs for personal protective equipment (PPE).
With $100 million paid to staff and third-party contractors as part of a “hero bonus” program, the company doled out significantly more money to frontline caregivers than executives, according to the statement.
During the Wednesday hearing, Warren specifically asked Adelina Ramos — a certified nursing assistant at a Genesis-owned facility in Rhode Island who had earlier testified about her experience with staffing shortages and contracting COVID-19 herself during the pandemic — whether executives should have received multi-million-dollar bonuses.
“I don’t think they should make millions of dollars in bonuses,” Ramos said. “Because it’s Medicare money, that money should be going to patient care. With that $5 million that he received, we could have put a higher wage, so we could attract more staff to the field.”
Genesis described the controversial retention bonus as normal and necessary to retain key personnel during the restructuring process, which began in the fall of 2020; Hager’s departure at the start of the year was due to Genesis’s increasing reliance on third-party advisors amid “challenging negotiations with creditors,” the company asserted.
“As a result, Mr. Hager and the Board mutually agreed that the time was right for his departure, for what is known as ‘good reason,’ and negotiated a separation agreement,” the company wrote in the statement. “Mr. Hager’s departure for ‘good reason’ entitled him to a severance payment, per his employment agreement.”
Genesis also denied that the restructuring will have any effect on residents and staff.
“The new operators will be vetted by their respective state licensure agencies. We remain committed to a seamless transition of these properties to new operators, ensuring that the wellbeing of our current residents and patients are at the heart of all of our efforts,” the company wrote. “We expect virtually all employees to be offered opportunities to transition to the new operators.”
Maggie Flynn contributed reporting.