Mainstreet nixes ambitious Arizona plan, terminates at least 70 workers

Just six months after announcing plans to open four rehabilitation facilities in Arizona and hire 800 employees there, Carmel-based Mainstreet Health stunned workers this week by pulling out of the market and laying off scores of people.

Mainstreet Health parent firm Mainstreet, a developer and operator of senior care facilities, confirmed it is leaving Arizona and shedding several properties, blaming higher-than-expected startup costs and a “challenging reimbursement environment.”

Mainstreet CEO Zeke Turner said he made the decision over the weekend to pull out of Arizona. He said the decision will result in the termination of 70 full-time employees, along with an unspecified number of part-time workers.

“It was a hard decision to no longer move forward, particularly in that it affects people, but it was the right decision,” Turner said in an email to IBJ.

The move represents a remarkable about-face for Mainstreet, which rolled out its Arizona plans with huge fanfare in September. At the time, it had called the rehabilitation centers “rapid recovery facilities,” a new concept designed to feel like a hotel. The centers were touted as providing a bridge between the hospital and home for patients recovering from a broad range of surgical and medical conditions.

“The company has a proven track record of developing hotel-like health care properties specially designed to help post-acute-care patients get well quickly,” Mainstreet had said in a press release Sept. 14.

The plans called for opening four rehab centers by the end of 2017 in Phoenix, Tucson, Chandler and Surprise. Mainstreet held ribbon-cuttings at several of the locations and received state licensing to operate them.

But Mainstreet has opened just one location, in Surprise, a suburb located about 30 miles northwest of Phoenix, according to Turner. The facility had barely begun operations and had only a “couple trial patients in house,” he said.

“Our other facilities will no longer open as planned and have gone on the market for sale,” Turner said.

Some workers said they were stunned and disappointed to get the news. Angela Rice, a licensed practical nurse at the Surprise facility, said her supervisor texted her Monday, asking her to call. When Rice called, she was told the doors to the Surprise facility would close as soon as it transferred patients elsewhere, which happened on Wednesday.

"I am very disappointed," Rice said. "I feel they were very irresponsible in trying to build and open four facilities at the same time.  … We worked so hard, doing everything from cleaning, assisting with basic maintenance, organizing. … I would love to hear an actual explanation for the problems. And if it was that bad, why did they keep on as long as they did. This didn't happen overnight."

Turner attributed part of the setback to higher-than-expected start-up costs but declined to provide figures.

"We don’t share this level of detail publicly, but the start-up costs are substantial,” he said. “Spending even more into properties we are selling did not make a lot of sense.”

He added: “The challenges to operate a skilled-nursing facility in Arizona were many and we’ve decided to focus our resources in areas we deem to have more potential for success.”

The company had not said how much it spent on the Arizona project, but the Phoenix Business Journal reported that Mainstreet was “investing upward of $100 million” to develop and staff the four sites.

Turner said it would either sell the Arizona buildings or lease them to another operator.

In recent months, Mainstreet has been selling other properties around the country and trimming its workforce.

In January, it sold two properties in Nebraska and Texas with a total of 142 beds for $44 million to Invesque, a Carmel real estate company. Mainstreet and Invesque share the same Carmel address, 14390 Clay Terrace Boulevard.