Haven Healthcare's troubled legacy in Connecticut will probably come to an end this summer, when a bankruptcy court judge is expected to sign off on a deal to sell the nursing-home chain to Formation Capital, which owns Genesis HealthCare.
Under an agreement disclosed Thursday, Genesis would take over management of 14 of Haven's 15 homes in Connecticut and 10 in other New England states on Aug. 1, making it the largest nursing-home provider in the state, with more than 3,000 beds. Genesis, which now manages nine nursing homes in Connecticut, was bought out last year by Formation Capital, a private-equity firm based in Alpharetta, Ga.
Formation is offering a base price of $84.75 million for the Haven chain, excluding one of the homes in South Windsor, which is not part of the sale agreement. The future management of the South Windsor home is uncertain, with state officials saying they are exploring options for its continued operation.
Formation's offer is significantly less than a $105 million bid from a previous suitor, Michigan-based LifeHouse Retirement Properties Inc. LifeHouse withdrew its offer last month after failing to secure the sizable increases in state Medicaid rates that it had requested.
Proceeds from the Formation sale are expected to pay off Haven's secured creditors — namely, its chief lender, CapitalSource Finance — but will leave nothing for the dozens of vendors with unsecured debt, court filings indicate.
"Under the proposed sale, there is no potential for recovery for the unsecured creditors," court records say.
The committee of unsecured creditors, which represents large and small vendors with millions of dollars in claims against Haven, filed objections to the sale Thursday, arguing that there should be more than one bid and a higher "floor" price set for the chain. But those objections are not likely to derail a sale, officials said.
Haven declared bankruptcy last November, in the wake of a series in The Courant detailing the chain's financial troubles and repeated citations for patient-care deficiencies. The company defaulted on millions of dollars in bills for supplies and utilities, while its CEO, Raymond Termini, used corporate assets to launch a Nashville recording company and make other personal purchases.
Genesis is expected to replace Haven's top management and change the chain's name, officials said.
"Termini and company are history," said Attorney General Richard Blumenthal, whose office has pushed for a change of ownership.
Genesis intends to honor existing union contracts and hopes to retain nursing staff and add workers in the homes, said Richard Blinn, Genesis' president for the Northeast region. Genesis is one of the largest skilled-nursing providers in the Northeast, with more than 200 nursing homes and assisted-living facilities in 13 eastern states.
Blinn said the company plans to keep all the Haven homes open and wants to stabilize occupancy and reassure workers and residents' families that the chain is providing good care. Occupancy rates at some of the homes have fallen off significantly since the bankruptcy filing.
The sales agreement comes as a temporary financing package that was keeping Haven afloat is set to expire — a scenario that had state officials considering the last-resort option of placing the chain in state receivership, which could have led to the closing of some homes. In recent days, top officials of the attorney general's office and the Department of Social Services had intervened to forge an agreement with Formation.
Blumenthal said Thursday he was hopeful that the sale would be approved by the bankruptcy court on June 26.
"It's a profoundly significant milestone, a real turning point," he said of the Formation agreement. "It should provide solid assurance to all of the residents and their families that quality of care will be preserved and even enhanced, and that this once-doomed nursing home chain can be brought back to solid financial ground."
The proposed sale to Formation comes at a time when some health care advocates and members of Congress are raising concerns that private-equity ownership of nursing home chains, which splits financial operations from day-to-day management, obscures a chain's finances and undercuts accountability for patient care.
Social services Commissioner Michael P. Starkowski said the state had negotiated operating agreements with Genesis that will allow for better state oversight of finances and staffing levels. Genesis will provide the state with quarterly financial reports that detail any outstanding debts, and has agreed to a cap on the management fees it collects, he said.
In addition, he said, Genesis has agreed to provide at least 3.3 hours of direct care per day to each resident — slightly less than the statewide average, but higher than the 1.9-hour minimum required in the state's public health code.
The Genesis homes will receive interim increases in state Medicaid rates that average about 5 to 5.5 percent — an amount that Starkowski said strikes "a balance between appropriate rate relief and what was in the best interest of taxpayers." He also said Genesis had agreed to invest at least $13 million in capital improvements to the Connecticut homes in the next three years.
"I think it's a good outcome," Starkowski said. "They [Genesis] have a good reputation in the state."
Blumenthal said Thursday there were limited options for selling such a large chain, in an environment in which private-equity ownership has become common.
"In a sense, the solution here was partly dictated by the magnitude of the problem," he said. "We're not talking about one home or a handful of homes; we're talking about 25, which in itself creates real challenges."
Federal data from 2006 and 2007 indicate that Genesis' nine homes in Connecticut have higher staffing levels and fewer patient-care deficiencies than Haven's homes — although several other chains operating in the state have even better inspection records.
Genesis homes had an average of 21.3 registered and licensed nurses per 100 beds — slightly higher than the statewide average of 20.2 nurses per 100 beds, the data show. The Genesis homes were cited for 20.4 patient-care deficiencies per 100 beds over the two years — significantly less than Haven's average of 31.1 deficiencies per 100 beds, and lower than the statewide average.
Genesis operates homes in Groton, Windsor, Naugatuck, Rockville, Colchester, Meriden, Glastonbury and Wallingford.
Haven Healthcare sprung up quickly in the late 1990s, when Termini took over operations of the former Roncalli Health Care chain and began acquiring financially troubled nursing homes. The Haven chain has had ongoing financial troubles, which came to a head in 2006, when state officials found that Termini had used more than $5 million in corporate assets to launch the Nashville record company and make other personal purchases, while bills for supplies and services went unpaid. Blumenthal has said his office pushed the social services department at the time to pursue state receivership, but the recommendation was not heeded.
Blumenthal said Thursday that his office and federal authorities were continuing probes into Haven's financial dealings, and that the state would "continue to seek recovery of any misused [Medicaid] money" from Termini and other Haven partners. Termini has staunchly denied any wrongdoing.
Contact Lisa Chedekel at email@example.com.Copyright © 2015, The Baltimore Sun