By Lee Pacchia
Since the start of the COVID-19 pandemic, senior living facilities have been facing strong financial and operational headwinds. According to a recent analysis of federal data in the Wall Street Journal, the United States has lost at least 600 nursing homes in the past six years. The challenges facing the industry are formidable — Medicaid payments are not keeping up with inflation and states facing budgetary pressures appear inclined to reduce reimbursements. Staff shortages and rising labor costs haven’t helped, as many facility workers left at the height of the pandemic for higher paying roles in hospitals or as traveling nurses. There are also signs that more senior care is taking place in patients’ homes. In an industry where profit margins were already thin, the latest round of challenges will likely prove too much for many stressed operators to handle.
A resulting wave of insolvencies in the senior living facility space could emerge as organizations come to view a Chapter 11 and sale process as the best outcome for all interested parties. For a variety of reasons specific to the industry, such cases will prove to be challenging and complicated affairs, particularly from a communications standpoint.
When any business becomes stressed or distressed, the broad swath of stakeholders in and around the organization are all impacted in different ways. A baseline communications objective for any restructuring or bankruptcy is to strategically message each impacted constituency, despite their varied interests and agendas, in a way that preserves operational viability while lawyers and financial advisors work to fix what ails the company. Healthcare bankruptcies, however, are especially complicated. They often involve additional players such as government agencies, elected officials, trade unions, patients, and others who each bring a unique set of interests and concerns that may not coincide with those of the debtor. Senior care facility bankruptcies, in particular, are extremely complicated affairs from a communications standpoint, as there is often a tension between providing critical care for patients and cutting expenditures to salvage the facility’s economic value. This tension is even more fraught when the patients are economically disadvantaged. In these scenarios, the often stark contrast between public interest and the financial realities of the industry require carefully considered messaging to all parties involved. Suffice to say, when it comes to senior living facilities, your stakeholder map is not your usual cast of characters.
It’s important to remember that senior living facilities are not mere widget factories, they are in the business of taking care of people’s health and wellbeing. If operations are impacted by a financial crisis, an enormous amount of time and attention needs to be devoted to maintaining a standards of patient care and keeping patients’ families fully informed. This ultimately comes down to ensuring that clear and consistent internal and external communications are maintained throughout the process. If an in-house communications team is absent or diminished in this period, external communications specialists will need to be inserted into the situation to make sure that patients and their families are kept in the loop and cared for. This is easier said than done, as facilities in restructurings or bankruptcies will experience a balancing act between providing patients adequate care and attending to the financial needs of the organization. In a Chapter 11 case, several supervising authorities – the bankruptcy court, government agencies, patient ombudsmen, and others – will constantly be testing a debtor to ensure patient care remains as high as possible throughout the process. Communications professionals will need to work in concert with legal counsel and financial advisors to make sure all of these additional parties are messaged effectively.
As regulated entities, senior care facilities need to treat the relevant government agencies as critical stakeholders in the bankruptcy process. Particular care and consideration need to go towards maintaining these relationships through clear and consistent messaging in order to avoid compounding a debtor’s distress. Regulatory authorities should give as much advance notice on a debtor’s financial or operational impairments as possible and need to be assured that issues will be fixed without lapses in patient care. Any failure to do so could exacerbate a distressed situation by forcing a regulator to act. In addition, penalties, regulatory lapses or other related issues could impact an agency’s views on a case leading them to stand in the way of a sale or restructuring plan.
Given the additional parties in interest, complicated stakeholder matrix, and special operational considerations senior living facility bankruptcies can entail, industry participants would do well to conduct as much communications planning as possible in the event of a crisis. This likely requires stakeholder mapping the various constituencies that would be impacted by a restructuring or bankruptcy well ahead of time. This exercise should prove to be a valuable opportunity for organizations to drill down and fully understand the nuances of each stakeholder group – their agendas, their probable pain points, and desired responses. Senior care facilities should also utilize this time to draw up a detailed crisis communications plan for a restructuring or bankruptcy scenario, carefully outlining who inside or adjacent to the organization has responsibility for communications, deliverables, and actions, throughout the contemplated process.
All businesses need to communicate effectively with internal and external stakeholders in restructurings and bankruptcies in order to bolster perception and ultimately preserve value as they move through the period of distress. For senior care facilities, these communications needs are dramatically heightened on account of an expanded cadre of stakeholders and special operational challenges. As economic headwinds continue to challenge the industry, participants need to start preparing for these scenarios as soon as possible.
For today’s senior living facilities, preparation for communications in the event of the restructuring is key. Download our guide to crisis communications planning to get started. Ready to discuss your situation with our team? ICR’s Transactions and Special Situations team has provided guidance and comprehensive strategic communications during restructuring to hundreds of companies. Get in touch.