Genesis health venturesBackgroundGenesis Health Ventures of Kennett Square, Pennsylvania, was established in May 1985 to meet the healthcare needs of the elderly population. It has over 350 nursing homes and assisted living communities spread across 16 states in the U.S. These facilities tend to more than 7.
5 million patients (above the age of 65) and represents health care spending of about $90 million.In addition, the company provides and sells services like pharmaceutical care, medical supplies and equipment, home infusion therapy, rehabilitation services and wellness programs.It currently runs at 90% occupancy.By 1999, the company had started experiencing financial difficulty. In March 2000, it was already in talks concerning capital restructuring.Key IssuesThe key issues are:§ There is a lot of competition in this market. Genesis Health Ventures ends up competing with not-for-profit organizations.
These organizations do not pay tax and are able to get a lot of money to operate because individuals are encouraged to give donations so that they can enjoy tax shields.§ A redistribution of the marketing efforts needs to be done so that Medicare patients can be the highest number of patients, followed by Private Clients and then Medicaid patients. Otherwise, the per diem amounts need to be adjusted.
Medicare and Medicaid patients make up the bigger percentage of the clients of Genesis Health Ventures. In fact, based on Exhibit 6, they make up more than 50% of the clientele with Medicaid representing 39%, Medicare 14% and Private clients 47 %. Medicare patients make up just 15% in volume even though Medicare patients are charged the highest per diem ($294) and are the most profitable market. On the other hand, Medicaid clients who are almost 40% of GHV’s clients are being charged the lowest (only $111). Private patients (49% in volume) are charged $154. (Exhibit 5.
)§ Another issue is that a profit-making enterprise like Genesis Health Ventures should not be providing services likes sub-acute medical services at a lower cost than hospitals or traditional acute care centers. It makes it run at a loss.Risks§ The company is operating in an industry that experiences labor shortages and therefore increased salaries. Because of this, it is easy for labor shortages to impact profitability of healthcare providers like Genesis Health Ventures.§ Because the industry is so volatile, Genesis Health Ventures should not sign fixed-fee contracts because it could end up running at a loss.§ Due to the dependence on government regulation and the government trend towards lower re-imbursement rates (so that they can scale back health care expenditure), it is too easy for Genesis Health Ventures to end up running at a loss.
Some legislation result in operations like GMV having to pay fines, payment withholdings or to be liable to criminal charges or exclusion from the program.Recommendations and detailed support for recommendations§ The company needs to do some Cost Accounting so that it can determine its most profitable lines and concentrate more efforts there so that it can generate more revenue and more profits.§ As a profit-generating venture with responsibility to its shareholders, the company has to stop providing services at a lower cost than government hospitals and the like.§ Also, it needs to get out of any fixed-cost contracts or stop getting into such agreements.