‘New beginning’ seen at Hearthstone

Articles, SAK in the News

by Susan W. Murray

In a hopeful development for Woodstock’s Hearthstone Communities, SAK Healthcare – headquartered in Riverwoods, Ill. – took over management of the continuing care retirement community on Feb. 8.

Residents were introduced to members of the new management team at a meeting six days later.

The Hearthstone complex on North Seminary Avenue includes 28 independent living duplexes; assisted living in Hearthstone Village; skilled nursing, rehabilitation, and memory care at Hearthstone Manor; daycare, preschool, and before- and afterschool care at Hearthstone Learning Center; and several brick duplexes at Serenity Creek off South Street.

SAK Healthcare “specializes in advising distressed healthcare facilities that require strategic redirection and turnaround management services,” according to the company’s website.

The move resulted from a “consensual” agreement with Hearthstone’s board and its lenders to allow for restructuring, said SAK’s founder and CEO, Suzanne Koenig.

“The residents and the community will have a new beginning,” Koenig said, “that will bring Hearthstone back to its glory days.”

Difficult situation

Senior facilities that provide skilled nursing care are struggling throughout the country, partly the result of lower occupancy rates during and after COVID-19. Illinois facilities that provide care for Medicaid patients, such as Hearthstone, receive about $200 a day, an amount that the JAMA Network journal from the American Medical Association says is below the cost of patient care.

Summarized below, The Woodstock Independent reported on the difficulties that Hearthstone faced in articles on Aug. 22 and Nov. 28.

The full tax filings posted on the Pro Publica website indicate Hearthstone’s financial challenges over the past decade.

In 2015, expenses exceeded revenue by $172,452; in 2016, expenses outpaced revenue by $114,514.

In 2017, Heritage Ministries of Gerry, N.Y., began providing management services to Hearthstone, part of an expansion into other states, including Pennsylvania and Washington. Within three years, the negative gap between expenses and revenue had widened. In 2020, expenses exceeded revenue by $1.1 million, by $1.3 million in 2021, and by $2.5 million in 2022.

The financial strain meant that Hearthstone was tardy or unable to pay some vendors, had not refunded entrance fees to some families of residents who had lived in the independent Garden or Prairie homes, and did not pay 2021 or 2022 property taxes on eight parcels.

The property taxes have been sold to investors; the amount to redeem all eight parcels is about $287,000.

In a July 5 letter, Heritage Ministries informed Hearthstone residents that Heritage would “cease providing funds above what is contractually required.” In mid-November, Heritage terminated its relationship with Hearthstone and with The Kenney, a senior living community in West Seattle.

Placed in receivership

As grim as that sounds, Koenig has nothing but enthusiasm for the turnaround that she believes is not only possible, but highly likely.

Officially, SAK Illinois LLC is Hearthstone’s court-appointed receiver.

A receivership is a tool that helps companies avoid bankruptcy and return to profitability.

“This is not negative at all,” Koenig said. “It allows the company to restructure and helps the residents get what they need and the care they need.”

SAK has been in the business of advising distressed healthcare facilities since 1987 and has worked with more than 300 healthcare facilities in 44 states.

The process relies on a team made up of specialists, including licensed nursing home administrators, registered nurses, clinical dietitians, and financial advisers.

“Specialists have been in the building since last Friday [Feb. 9],” Koenig said in a telephone interview.

Their immediate priorities were to assess resident care, look at the facility’s environment, and verify that dietary needs are being met, she said. After that, SAK will work to ensure that vendors are paid going forward and that unpaid bills are addressed.

“Rome was not built in a day,” Koenig cautioned. “We are looking to see positive changes in the next few months.”

While SAK provides the management services, Crystal Noble – a longtime Hearthstone employee – has been named Hearthstone’s interim executive director.

‘Very positive vibes’

Koenig said that while residents were understandably nervous about change, they were also “very excited.”

Koenig spent her workday last Thursday at Hearthstone.

“Once they heard how long I’ve been in the business, they were relieved and thankful,” Koenig said.

“There were very positive vibes today.”

This article originally appeared in The Woodstock Independent, Feb 21-27 Issue