Acadiana Management Group (AMG) is a privately owned provider of long-term acute-care (LTAC) and inpatient rehabilitation services. AMG had significant growth from 2011 to 2015, opening 11 facilities and becoming one of the top five post-acute hospital systems nationally.
Medicare is the principal payer for LTAC services, and most companies in the sector focus their efforts to ensure their compliance with Medicare regulations. Beginning in fiscal year 2016, Medicare introduced a new payment system and qualifying criteria that significantly reduced payments to LTACs. In fiscal year 2015, LTACs received about $41,000 on average for a 25-day patient stay. With the new regulation fully implemented, in order to receive the full reimbursement, LTACs now have to demonstrate, among other criteria, that their patients were in intensive care or on a ventilator for a minimum number of days prior to admission. With these stricter reimbursement standards, LTACs are expected to receive $10,000 on average for nonqualifying 25-day stays.
AMG has taken significant action to respond to Medicare reimbursement changes, including working with referring hospitals and doctors to gather the necessary patient records at admission. However, some of its LTAC facilities have become financially unsustainable. As a result, the management company, along with 15 affiliates, filed for Chapter 11 bankruptcy protection on June 23, 2017.
Jessica McGee, CFO and Vice President of Corporate Operations, is at the center of AMG’s restructuring efforts. She has been in the healthcare industry since 1996 and has played a key role in steering AMG to take profitable initiatives. McGee knows the LTAC business and has demonstrated her ability to identify challenges and weaknesses on restructuring alternatives. The Journal recently spoke with McGee, who shared her thoughts on her significant role transforming AMG’s operations and what it takes to successfully emerge from bankruptcy.
Companies undergoing Chapter 11 are still operating while making efforts to emerge from bankruptcy. During these times companies rely on their people to conduct regular business and apply the necessary changes for a successful turnaround. You have developed the people in your management team and operations for several years now, how did you prepare them for the bankruptcy process?
Your employees are your greatest asset. The most expensive cost in most businesses is employee turnover. Orientation and training of a new employee becomes an investment that you want to protect, especially at the management level. Bankruptcy is a scary word for all employees, including your management team. If you don’t communicate openly and honestly with them, they begin to feel very insecure and will start seeking alternative employment. We announced our Chapter 11 filing to our team immediately upon filing. We have always been confident that the filing will help us to become a better and stronger company, and we expressed that confidence to our employees through multiple meetings and email communications. Our management team became a part of the process, and we prepared them for questions and concerns that would probably come up from staff, vendors, and even patients. Frequent updates during the process are necessary, as well.
You became a CFO and Vice President of Corporate Operations when the company was highly profitable and focusing on growing its operations. How have your role and responsibilities changed in the past year?
Prior to the filing, I became caught up in the daily tasks and decision making that could have been done by my financial team. Our cash flow situation made our team less confident in decision-making skills, and we focused more on daily challenges rather than planning and improvement. The Chapter 11 filing, however, requires so much additional reporting and due diligence. It became necessary for me to step back and assign more tasks to my accounting team. I have also made them more accountable for their reporting, and we have learned to be more efficient and accurate. Looking at the forest instead of being in the trees has helped me to become a better financial manager.
What have been the most important changes implemented under your direction? What are the results expected from these changes?
Our financial circumstance prior to the filing was very difficult to manage. It was a week-by-week process, and we faced a great deal of uncertainty. The petition filing relieved the pressure and allowed us to focus our attention on the success of the hospitals we could sustain. We became more disciplined in our financial management and developed tools to help us better manage the hospitals as a whole. Our financial department also now works very closely with hospital operations to manage vendors and expenses, providing us with the opportunity to be more efficient with our working capital.
AMG hired a team of financial advisors to help the company’s reorganization. What has been their most valuable contribution to your operations?
Our advisors were instrumental in guiding us through the bankruptcy process. New questions and situations arose daily. The advising team relieved a great deal of pressure by dealing with the secured and unsecured creditors on our behalf. They made some impossible situations possible again. I am grateful for the daily support they provided.
What advice would you give executives considering filing for bankruptcy?
Avoid the wishful thinking that precedes a bankruptcy filing. Your problems don’t just all go away. You have to be willing to pull your sleeves up and face some hard decisions. You also have to become financially disciplined and focus efforts on increasing profitability. Swallow your pride and learn to rely on experts who can view your business from a different perspective and perhaps provide valuable insight to ensure long-term sustainability.
The U.S. Bankruptcy Court confirmed AMG’s Plan of Reorganization on February 27, 2018. AMG believes the plan will maximize recoveries and achieve the most advantageous outcome for all creditors.
Stout is a financial advisor to Acadiana Management Group.