Changes in Long Term Care Leadership Significant

Implications: The recent changes in leadership in the LTAC space is significant and suggests a tightening of operations. It is important to monitor the overall long term space as well as follow who goes where.  The changes are not insignificant, but may not be as ominous as they appear on the surface. Investors might want to monitor the sector performance closely for the next year or so.

Analysis: The article  announces the resignation of long term space veteran Earl Reed III from Life Care Holdings, Plano TX. Reed whose career started at Vencor (now Kindred) included a stint at Allegro Group a healthcare consulting company in Louisville, KY. When LifeCare was taken over by the Carlyle Group, a private equity firm, they wisely chose Reed because of his knowledge and management style. Now Reed has decided it's time to leave LifeCare and return to Allegro.

Reed is just the latest of several C-level executives leaving their jobs at LTAC companies. In late July Regency Hospital Company's founder and CEO Rod Laughlin announced he'd be concentrating on external relationships and growing the company, but stepping down as CEO. Regency is looking for a new president and CEO . Just weeks before that Regency's CFO left the company. Mike Cress resigned from Cornerstone Healthcare Group -an Austin based long term care company- earlier this year, supposedly to start his own consulting company.

Long term care companies are all facing challenges due to recent CMS regulatory changes and reduced reimbursement. Many have squeezed as much a as they can out of operational expenses and are not as successful as they would like in increasing revenue from non-CMS sources. Bad debt, census and cost of capital are all challenges that are reflected in lowered performance of several "former stars" in the LTAC space.

The re-shuffling of C-level executives might be just routine moves, but I suspect it's more significant. Some might be bailing before their company's challenge gets worse. Those interested in this space should monitor the situation closely for further changes before  coming to any firm conclusions.