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AdCare Health Systems (ADK) Sees No Meaningful Medicare Revenue Impact from CMS 2012 Rate Changes

AdCare Health Systems, Inc., a leading provider of skilled nursing and assisted living for seniors, has determined that after reviewing the final rule on Prospective Payment System and Consolidated Billing for Skilled Nursing Facilities for FY2012 as issued by The Centers for Medicare Medicaid Services (CMS) on July 29, 2011, it will not be meaningful to AdCare’s 2012 Medicare revenue as compared to 2011 Medicare revenue given the company’s operating and acquisition strategy.

“AdCare’s acquisition strategy has been to acquire skilled nursing properties that have not traditionally concentrated on providing Medicare and post-acute services, and once acquired, to optimize patient care, occupancy and quality mix,” noted Boyd Gentry, AdCare’s president and chief executive officer. “However, CMS’s 2012 rate changes are largely focused on the Ultra High Rehab RUG categories where payment rates range from $600 to nearly $900 per day. This level of post-acute rehabilitation services have not traditionally been provided in the facilities targeted by AdCare for acquisition, and our recent acquisitions have had an average facility Medicare rate of $331 a day at the time of acquisition. Moreover, AdCare’s average facility Medicare reimbursement rate for Q1 2011 was $456 per patient day, reflecting the relatively large proportion of recently acquired, non-optimized facilities.”

“Our operating team has also demonstrated that they can increase Medicare census and rates,” added Gentry. “The company has increased Medicare census by 40% in facilities that we’ve operated for less than one year. This has resulted in an increase in quality mix to approximately 14% for the entire company, as compared to an average of 10% at the time of individual facility acquisition.”

The company plans to continue pursuing an aggressive MA program. Combining its first quarter 2011 revenue with transactions currently in the process of closing, AdCare’s estimated annualized revenue run-rate is expected to exceed $268 million. This would represent an increase of more than 400% over the company’s revenues in 2010, and an increase of more than 900% over revenues in 2009 when it initiated its MA campaign.

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