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Some related articles : 9 of 10 Nursing Homes Lack Adequate Staff, Study Finds |
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Bringing Discipline (and Scorecards) to Nursing Homes
Sitting in a conference room at the headquarters here of Beverly Enterprises, the nation's largest nursing home chain, William R. Floyd, its chairman and chief executive, is arguing that providing nursing care to the elderly is not all that different from selling tacos at a fast-food chain. "There really are an enormous number of similarities between this and the world I came from," said Mr. Floyd, 57, an intense but self-effacing executive who spent seven years at PepsiCo, most of them at Taco Bell. Recruited to Beverly in April 2000, he was appointed chief executive 10 months later and has spent the last year and a half working to turn around the beleaguered company. Beverly, which had revenue of $2.71 billion last year, operates multiple units, just as a chain of restaurants does, he said. The company also relies heavily on low-wage employees — nursing assistants — to provide care. "Taco Bell competes with Beverly for these people," Mr. Floyd said. But there are obvious differences. To an industry known for lax, decentralized management of its facilities and little innovation, Mr. Floyd brings a keen emphasis on accountability and is experimenting with more than a dozen new, potentially more profitable health care services. By setting clear financial goals for his managers and by linking their pay to the quality of care, he has already improved the company's profitability and says it is providing better care. Before he can declare victory, however, Mr. Floyd faces many challenges, most recently a criminal investigation by the state of California into 46 citations for inadequate patient care at 20 facilities. While the incidents took place from 1998 to 2001, they are a stark reminder of Beverly's frequent run-ins with regulators over how it treats its residents and the prevailing image of a nursing home as a place where no one wants to be. Last year, for example, a Beverly home in Santa Barbara, Calif., that accounted for 25 of the 46 citations, was fined by the state health department for failing "to properly care for a resident who was fed through a stomach tube, resulting in severe infection and his death." That nursing home, which is also the subject of several private lawsuits, is part of the state's inquiry. Beverly sold that home last year and is in discussions with regulators about the citations. A settlement could be reached as soon as this month, most likely including a substantial fine. The company also expects to be asked to plead guilty to a criminal charge, but has made no decision on that. In a case brought by California last year against another national chain, the Sun Healthcare Group, a unit of that company pleaded "no contest" to a felony charge and the whole company agreed to improve staffing and oversight. Beyond the regulatory cases, Beverly and the entire industry, of course, face tremendous uncertainty about federal and state reimbursement policies. When Medicare changed how it paid for care a few years ago, many operators went through bankruptcy reorganizations, including public companies like Kindred Healthcare and Genesis Health Ventures. Investors remain wary of the industry, and they are unlikely to warm to it. Cuts in state and federal budgets for nursing home care are a distinct possibility as states retrench because of falling tax receipts and as Congress debates funding for Medicare. While praising Beverly's management, Friess Associates, an investment management company that had been a large holder of the stock, recently sold its position over concerns about possible cuts in Medicare reimbursement rates. Mr. Floyd refuses to adopt what he calls the industry's tendency to view itself as a victim, but he still faces the daunting task of convincing regulators, investors, the public and his own employees that Beverly can escape its past. Over the years, regulators have persistently raised questions about the quality of care that Beverly provides, and the new management team must somehow take what is essentially a low-growth and low-margin business and create something dynamic. "He asked a lot of tough questions," said Marilyn R. Seymann, a Beverly director who spent several hours with Mr. Floyd before he began his new job. "I sugar-coated nothing." In 1998, he left as chief executive of Choice Hotels International, which franchises the Comfort Inn, Econo Lodge and other brands, after finding that he did not have the support of the board or the previous chief executive. He spent the next year and a half, when not climbing mountains, considering his options. Upon his arrival, Mr. Floyd saw an opportunity to make Beverly a leader in an industry badly in need of one. Despite its leading position, Beverly accounts for just 3 percent of the nation's 1.8 million nursing-home beds, with many of its homes in California, Pennsylvania and Arkansas. Most rivals are for-profit businesses, ranging from large public companies like Manor Care to scattered regional chains to small operators. Many facilities struggled or even failed after the Medicare cuts of the late 1990's and fierce competition from assisted-living centers — residences that offer some services and appeal to people who shudder at the thought of being in a nursing home. Because many states limit the number of nursing-home beds, the competition is not as intense as it might be otherwise. "Within a market, they compete with each other over relationships with referral sources," like hospitals, said Jerry L. Doctrow, a senior analyst at Legg Mason Wood Walker. Many of Beverly's residents arrive directly from hospitals. After receiving some form of rehabilitative therapy, about half leave within six months. Mr. Floyd said he found a company with no clear direction and with a management team that was badly demoralized. He quickly replaced many of Beverly's senior managers. Blaise J. Mercadante, a marketing colleague from Taco Bell who also spent some time as a senior marketing executive at Universal Studios, now oversees marketing and business innovation. Jeffrey P. Freimark, who had run the Grand Union supermarket chain while it tried to reorganize under bankruptcy laws, was recruited as chief financial officer. Mr. Floyd also introduced Beverly to the kind of accountability found at companies like PepsiCo, where managers must deliver results, said Kevin Jones, a portfolio manager at ICM Asset Management, which has invested in Beverly stock. Before Mr. Floyd arrived, "there wasn't a whole lot of focus on execution," Mr. Jones said. The new chief executive has been relentless in demanding performance from individual facilities, one-fifth of which he identified as poor performers in early 2001. Each is judged by a scorecard, on which factors like pretax income, employee turnover, occupancy, bad debt and quality of care are measured. Many have improved, and 14 were closed or sold last year. Because Florida accounted for most of Beverly's liability costs and just 10 percent of revenue, the company also simply left that market, selling about 50 nursing homes early this year. Although Beverly remains significantly less profitable than Manor Care, which had operating margins of 13.7 percent last year, compared with Beverly's 9 percent, its financial position has improved. Its margin reached 9.6 percent in the first quarter of 2002. The company reported a loss last year, largely a result of the settlement with the federal government and a $238 million write-off, but cash from operations reached $221 million, compared with $37 million in 2000. Beverly's stock, which topped $12 a year ago before a fresh wave of concerns over reimbursement levels, is now trading at $7.30. "It's a turnaround company in an industry that is scarred," said Tom Price, who works for MFP Investors, which has invested in Beverly and hopes for more improvement. "There's another whole round of rationalization the business can do." Beverly's facilities are now under much tighter corporate control, and Mr. Floyd has replaced one-third of the local managers. "I preach the gospel of the importance of the front lines," he said. Area directors of operations are now responsible for about 10 homes each, about half the number they had been overseeing. Mr. Floyd spent a week at a California facility when he first joined Beverly. He worked all three shifts at the home, working side by side with a nursing assistant, even helping to change residents' diapers. At Taco Bell, he had asked potential executives to work with a restaurant crew, and he is now asking every senior executive at Beverly to work for some time at a nursing home. "You gain so much respect," he said. "People will walk over broken glass for you." To increase occupancy levels and reduce its dependence on government payments, Beverly is emphasizing new services like units specializing in the care of Alzheimer's patients, many of whom pay privately and therefore higher fees than Medicare or Medicaid. Located in separate wings, these new units are intended to provide something of a home-like atmosphere with carpeting, wallpaper and comfortable furniture, in contrast to the linoleum floors and institutional feel of the industry's typical facilities. Patients are given much more individual care and can take part in special programs. Seventy-six of Beverly's facilities now offer Alzheimer's units, and the company plans to add about 30 more by year-end. In addition to 29 assisted-living centers, Beverly also offers home health care, therapy and hospice care. Mr. Floyd, however, must still fundamentally rethink how Beverly operates in an industry that is accused of largely warehousing the people it is supposed to care for. Beverly is already trying to innovate, by introducing strength-training programs, for example, that use special exercise equipment that it developed with the Nautilus Group. It is also exploring how to personalize care by assigning a team of employees to a specific small group of residents. And Mr. Floyd has yet to answer a big question for Beverly: "How do you grow the company?" said Nancy L. Weaver, an analyst who follows the company at Stephens Inc. He is trying to make the most of Beverly's skills, like providing therapy and nursing care, whether at someone's home or at another facility. Beverly's rehabilitative therapy unit, for example, renamed Aegis Therapies, accounted for more than $180 million in revenue last year. Among the other possibilities it is considering are services to older prison inmates. The proportion of prisoners aged 55 and above is expected to double, to about 20 percent, by 2012. But improving the quality of care remains the main challenge. Some consumer advocates say Beverly still provides poor care at many of its sites. "I haven't seen a difference," said Patricia L. McGinnis, the executive director of the California Advocates for Nursing Home Reform, a nonprofit group. To focus attention on quality issues, Mr. Floyd has linked compensation directly to quality improvements. Sixty percent of the bonus for a local manager depends on quality factors, like whether regulators find fault with care during their yearly reviews and how many residents are being restrained or heavily medicated. Even 20 percent of the bonus for corporate executives is tied to better quality. Trying to reduce the number of patients suffering from pressure sores, for example, Beverly bought $2.5 million worth of special bedding. The company set a goal of having no more than an average of 3 percent of its patients suffer from bed sores; it managed to get the average down to a new low of 2.6 percent, according to Patrice K. Acosta, the senior vice president of professional services. "The real issue is changing the culture," said Mr. Floyd, adding that such changes usually take a couple of years. "I'm seeing a momentum being established." FAIR USE NOTICE: This page contains copyrighted material the use of which has not been specifically authorized by the copyright owner. Global Action on Aging distributes this material without profit to those who have expressed a prior interest in receiving the included information for research and educational purposes. 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