"People will pay us to keep them home...." (interview with Genesis Health Ventures Chmn and CEO Michael R. Walker)(Interview)

According to today's business management gurus, before building and managing any successful business, top management must have a vision. Others may agree or disagree with that vision, but no matter - it must exist for a business to have any hope of negotiating its way strategically through all the uncertainties, pitfalls and opportunities that emerge day-to-day. Michael R. Walker has a vision of health care services to the elderly, a vision that motivated the rapid 12-year growth of Genesis Health Ventures, a network of "eldercare" services that includes 162 nursing facilities throughout the eastern United States. It saw its most recent fruition in the announcement of a planned $1.4 billion merger between Genesis and Multicare Companies, a 155-facility chain with markets in Boston, northern New Jersey and West Virginia This was the latest in a series of mega mergers announced this year, which included Living Centers of America/Grancare ($1.8 billion) and Vencor/Theratx ($354 million). Clearly, something is afoot in the evolution of long-term care upon which serious investors are willing to bet significant sums. Recently, Walker shared his vision and strategic thinking with Nursing Homes Editor Richard L. Peck.

Peck: What is the strategic thinking behind your planned merger with Multicare?

Walker: Genesis has, through the years, developed a strategy focusing on what we call eldercare markets, whether they include nursing centers, service companies, clinics, home health agencies or retirement communities. We started in Massachusetts, then grew into Connecticut, Rhode Island, Vermont and New Hampshire, to the point that we are the dominant provider of eldercare services in several major cities in those states. And I say "eldercare" because we are not a "long-term care company" anymore.

Who really wants "long-term" care? Why describe what the provider does rather than what the customer needs? "Eldercare" focuses on meeting customers' needs wherever they happen to be.

And this is our focus in growing the company. There are many "nice acquisitions" available in health care today, but if they are not in our defined market, we have to discipline ourselves to walk away from them. Multicare Companies has most of its assets in our strategic markets, and it is a dominant provider in northern New Jersey and has a strong presence in Boston, all of which have very strong demographics. Our centers receive reimbursement from Medicare, Medicaid and commercial insurance; Multicare has better private pay. By combining with them to create a greater concentration of facilities in these markets, we aim to increase our attractiveness to managed care companies.

Peck: Does this mean that you want to be doing more subacute care?

Walker: Not necessarily. Subacute care, in and of itself, is nothing new - we have always had talented nurses and other professionals who have provided this level of care in our facilities. The only thing that is new is that people have figured out how to get Medicare to pay for subacute at its higher rates. As it has developed in recent years, it is a financial strategy, rather than a clinical strategy.

We have never created subacute units as such. In fact, when we purchased Meridian Healthcare, we closed their subacute units and changed them to what we call Functional Evaluation and Treatment Units; these are admissions units and, as of now, we are discharging 50% of these patients to home within 45 days.

What we envision in contracting with managed care is providing comprehensive services for the same 65-year-old Medicare has always had, but who is now enrolled in managed care organizations (MCOs) - not just HMOs, but provider-sponsored organizations (PSOs) that are just beginning to grow. Whether the Federal budget process will eliminate some of the restrictions PSOs face is uncertain, but PSOs are emerging nevertheless. What these MCOs need is an entity like Genesis ElderCare to show them how to reduce their medical loss ratios in serving Medicare patients.

Peck: Which is why you're describing a much broader approach than such terms as "long-term care" and "subacute care" would indicate?

Walker: That's right. What we are marketing, basically, is our knowledge of how to manage chronic conditions and reduce costs. The elderly are high consumers of expensive health care services because of their chronic conditions. When these conditions get out of control, you end up with strokes, heart attacks and broken bones and all the costs involved in managing them. We think that people will pay us for our knowledge of the aging process, not just specific units of service, because it creates extra value for them.

Peck: Specifically, how is this knowledge marketed?

Walker: Our marketing effort will focus on controlling the costs of chronic care and supporting the goals and needs of older adults and their families through our Full Life Plan[SM]. This is an approach focusing on keeping people healthy and living at home, and leads to a personal program of solutions and services designed to support the elderly adult's and family's goals. It began on a very limited basis with our discharge planning at our facilities, but we are rolling it out on a much more comprehensive basis this fall.

The Full Life Plan assigns the elderly to one of three categories: successful agers, moderate agers and at-risk agers. Once a customer has been identified as belonging to one of these categories, our care coordinators develop an individualized plan of care coordinating all the services and information the customer needs to maximize his or her function. A moderate ager, for example, may receive a follow-up assessment every couple of months, and an at-risk ager perhaps every week, through either direct phone contact or in person, and would receive whatever information, referrals or services they require. We believe that customers will pay in the range of $50 a month for a service that enables them to stay healthy and at home. I would add that we expect that the principal purchasers of this will be not the elderly themselves but their caregivers who, on average, are already spending 17 hours a week and $200 a month attempting to do all this themselves.

Peck: In view of all this, what do you envision to be the fastest growing area in elderly health care? Some say it will be assisted living.

Walker: Assisted living is just another segment of long-term care. In a sense, nursing homes have provided assisted living services for 35 years. Historically, nursing homes had higher private pay, and many of our residents were not "sick" people; they were the people who needed assistance and are now going to retirement communities, life care communities and assisted living facilities. While it is true that we will see an explosive growth in the elderly population, and more and more assisted living facilities are being built to accommodate them, I think a mistake is made when assisted living is sold as a medical service. When investors run into the real financial responsibilities and liabilities involved in this, assisted living starts to come up short.

The really explosive growth will be in eldercare - providing comprehensive services to older people who are living independently and at home and who want to stay there. People will pay us to keep them home. That is where we think the real growth will occur and we anticipate, of course, that these customers will avail themselves of the ElderCare Network.

Peck: As a parting shot for the "merger mania" fans, would you discuss some of the advantages that companies such as yours see in consolidating the nursing home industry?

Walker: When you can create network operations and have them run efficiently, you have one admission to the system, rather than multiple admissions to various providers; you have one set of tests performed, rather than multiple sets; and you transmit all the needed data electronically from one level to the next. This enables you to reduce duplication, reduce utilization and, in the process, reduce costs.

As for "brand names" - all of our centers, for example, are under the name Genesis ElderCare, as will be Multicare's when that merger is completed - there are various ways this is brought into play. There is the "Madison Avenue" approach, and we will be doing that sort of advertising this fall to create general awareness of the Genesis ElderCare name. We also create brand awareness by having our centers become involved in community-based activities.

In this business, though, the best "brand name" promotion comes by word of mouth. Someone is aware that their Aunt Grace had a good experience at a Genesis Eldercare center. Word gets around, and more and more people decide to give it a try.

In our case, we want to spread the word that we are focused on keeping older adults as functionally independent through the aging process as they can possibly be. That is our strategic goal.