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LTC Bullet: Senior Entitlement Changes Plague LTC Giant

Tuesday June 23, 1998


*The content of this Bullet comes courtesy of LTC News andComment*

Vencor, the LTC giant, has announced layoffs and delays in new construction due to projected lower earnings for the remainder of this year and next year. Company officials blame constant changes in Medicare and Medicaid for the company's poor financial outlook. Recent changes to the way Medicare reimburses nursing-home care, enacted by the Balanced Budget Act of 1997, are singled out as especially damaging by Vencor's CEO. In October of 1997, the company's stock dropped 28% due to new rules in Medicare. New Medicare rates for SNF will average $320 per day, down from the current payment of $360 per day. Vencor bought Hillhaven in 1995, thus acquiring 300 nursing homes. It also owns 60 hospitals that specialize in long-term acute care.

In April of this year, Vencor evicted Medicaid patients from its nursing homes to make way for higher paying private patients. This policy was reversed soon due to investigations by governmental regulators. [Source: Wall Street Journal 6/19/98.]

COMMENT: Vencor is a relatively new company, acquiring its first hospital in 1985, and since growing to employ 80,000 people. The company came on the LTC scene when Medicare and Medicaid reimbursements were comparatively rich. The demographics of aging and of the future work force, however, have forced Congress and state legislatures to cut back on LTC
entitlements now, and to study ways of making more substantial changes to save a semblance of the programs for the future. The lesson learned the hard way by Vencor has already been understood by at least one LTC industry, assisted living: Do not build your LTC business on the foundation of governmental entitlements, but on the private dollar. Look for the home health care and nursing-home industries to follow the lead of the assisted living industry, and clone providers who specialize in private pay patients and emphasize quality.

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