While other ProMedica divisions have seen near pre-pandemic recovery, its senior care division patient volumes – which includes skilled nursing assets – are needing more time to recover.
A combination of Covid-related admission volume declines, elevated expense levels and reduced government stimulus funds all played a role in stymied recovery last year, the Toledo, Ohio-based company said in its unaudited quarterly disclosure published this week.
In order to stem operating losses and maximize liquidity, ProMedica has been receiving Medicare advance payments, deferring employer portion of federal payroll taxes (FICA) due in 2020, freezing nonessential hiring and spending and temporarily furloughing some employees.
The pandemic continued to impact overall revenue and operating results through 2021, and ProMedica management “expects some adverse effects on operations to continue into 2022,” the company stated.
Operational performance
Operating loss for the quarter was $93.1 million for its senior care division, which includes nursing home operations – ProMedica experienced a $43.5 million operating loss in Q4 of 2020.
The increased loss was despite net patient service revenue increasing by $27.6 million from Q4 2020 due to its 11 newly acquired facilities and increased volumes in its core business, ProMedica stated.
Elevated expenses, an increase of 2.9% from Q4 in 2020, was due to continued high agency use and infection control costs, according to the disclosure.
Steve Cavanaugh, CFO of ProMedica Systems, told Skilled Nursing News he had been hopeful that labor market dynamics would turn favorable for the nonprofit in 2021, but continued virtual school, fear and burnout when faced with returning to the workforce and “government interventions” kept many prospective professionals on the sidelines.
“We’ve not yet seen, as some of those things have started to dissipate, that it really has changed the workforce dynamic,” Cavanaugh said. “I think that’s the thing that has been a little bit of a surprise. [We] would have hoped to see some movement there and it doesn’t seem to have happened quite yet.”
ProMedica’s senior care division received $9.2 million in CARES Act funding, along with other government stimulus funds during Q4 2021, but it was insufficient to cover $36.5 million in Covid-related costs for the quarter.
For the year, ProMedica experienced an operating loss of $275.3 million in its senior care division – the division had operating income of $40.9 million in 2020.
“The prior year operating income included $236.7 million of stimulus revenue compared with only $52.9 million in 2021 as well as a profitable first quarter prior to the onset of the pandemic,” ProMedica stated.
Revenue for the division continued to be “significantly impacted” by reduced patient volume.
Still, revenue from its senior care division made up 40% of ProMedica’s overall operating revenue, followed by its provider division at 31% and insurance division at 29%.
“Our businesses are operating well below what we would consider normal occupancy levels,” Cavanaugh said. “You can see our skilled nursing occupancy is really kind of in the 70% range, a little bit above that range. Normally, that would be in kind of the low to mid 80% range.”
Joint Venture with Welltower
ProMedica reviewed its skilled nursing acquisitions and divestitures for the year in its financial disclosure this week, along with purchases that occurred subsequent to the end of its fourth financial quarter on Dec. 31.
The Toledo, Ohio-based not-for-profit operator highlighted its partnership with real estate investment trust (REIT) Welltower Inc. (NYSE: WELL) – ProMedica during the second quarter assumed operations of nine SNFs owned by the REIT and purchased 20% interest in the joint venture entity that owns the real estate.
Just one quarter prior, ProMedica, Welltower and a third-party operator agreed to divest a 23-facility SNF portfolio leased to ProMedica and owned by Welltower; ProMedica is expected to receive a portion of the sale proceeds and rent reduction for transfer of operating rights.
The divested portfolio generated operating losses of about $46 million for 2021, ProMedica reported.
ProMedica operates a health plan, physician group, 11 hospitals and one joint venture hospital, as well as 330 senior care facilities, including 157 SNFs as part of its senior care division; the company has operations in 28 states.
Effective Jan. 24, Welltower purchased 25% of ProMedica’s 20% interest in the joint venture, increasing its membership interest from 80% to 95% in exchange for $137.4 million in proceeds, the disclosure said.
As part of this change, the lease term of the master lease was amended and extended through Dec. 31, 2036, Promedica said in its disclosure.
Liquidity and future investments
ProMedica said it centralizes the management of cash and investments in its disclosure, pooled into a master trust with custody provided by BNY Mellon. Of its pooled funds, long-term operating makes up the lion’s share of investment portfolios at 58%.
Cavanaugh said there hasn’t really been a change in the disposition of ProMedica’s assets – if anything, investments are shifting toward safe assets and more liquidity.
“That’s kind of served us well as there’s been recently a lot of volatility and downward pressure in the markets,” Cavanaugh added.
Short-term operating, health plan and segregated and restricted funds make up the remaining investment portfolio at 12%, 14% and 16%, respectively.
ProMedica has $2.1 billion in unrestricted cash and investments to fund operational and capital expenditures. The company says it maintains a “high level of liquidity” among its investment portfolio – about 3% of investments, or $72.2 million, has liquidity provisions that may impede liquidation in 30 days or less, while less than 1$, or $10.2 million of investments have liquidity provisions greater than one year.
“We’ve tended, while we’re in this pandemic, to try and be in I’ll say a more liquid, more conservative kind of position and that’s been a very intentional decision on our part,” Cavanaugh said. “When you have a lot of uncertainty and you just don’t know what’s going to happen, when you have the potential to incur some operating losses like we have here in the short run, you just want to have the financial flexibility to deal with that.”
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