How Affiliation Took The Children's Home of Reading From a $1M Deficit to $3.6M Net Income

Written by Jack Silverstein for Behavioral Health Business

After more than 130 years in existence, The Children’s Home of Reading (CHOR) was at a crossroads. In 2016, the Reading, Pennsylvania-based care provider was struggling financially and facing an uncertain future, operating at an annual deficit of nearly a million dollars.

To address their potentially catastrophic circumstances, CHOR embraced what was then a new model: affiliation with Inperium. After eight years as an Inperium affiliate, CHOR’s net income has more than stabilized — it hit a high in the organization’s now 140-plus-year history.

“We’ve achieved financial stability and have grown in unimaginable ways,” says Dr. Vincent LaSorsa, who was CEO of CHOR for 22 years and is now Inperium’s Chief Relationship Officer and ombudsman. “I have often said that the Children’s Home of Reading would have closed its doors if not for the affiliation with Inperium.”

CHOR is one of the many care providers that have found success with Inperium, a nonprofit consolidator and orchestrator, which partners with health and human services organizations to create a resource-rich network that benefits all involved. Inperium asks a simple question:

What could you do with a bigger team and more capital behind you?

Inside CHOR’s three major challenges that were holding them back

The Children’s House of Reading was founded in 1884. So, when LaSorsa says that CHOR last year reached the highest net income in its history, that “history” is no small potatoes.

From its beginnings as Home for Friendless Children and well into this century, CHOR has been a backbone for its community, becoming a treatment-oriented organization with a full continuum of care, from restrictive psychiatric residential services to community-based services including foster care, adoption, licensed private academic schools and community-based programs.

But in the 2010s, CHOR’s financial tide began to turn.

“Our financial struggles started a few years prior to affiliation,” LaSorsa says. “We became an organization too dependent on fundraising and donations to cover operational losses. That led to a dwindling endowment, which raised red flags for me and for our board of directors.”

This spiral was exacerbated by three factors. First were CHOR’s unsuccessful attempts to obtain rate increases for their services. They had not had a rate increase in over 10 years.

Second, CHOR had facility needs and lacked the capital to address them, their excessive insurance premiums, and other related costs.

“We had a very strained banking relationship,” LaSorsa says. “Our primary lenders severed access to our foundation funds. This caused great financial strain for the organization. We attempted to decrease some FTEs to try to offset that, with most of those reductions occurring in the back-office areas — HR, IT, fiscal compliance — all of which made us really uneasy from a risk standpoint.”

Third, the state of Pennsylvania had a strong initiative to keep kids out of residential placement.

“All of this was the perfect storm that raised the red flags for us to do something,” LaSorsa says. “The residential census was reduced by 50%. We had shorter lengths of stay. The clients were more and more difficult to treat, requiring more and more resources, which cost more, which we were not able to put in place because of the financial condition of the organization.”

To right the ship, LaSorsa connected with Inperium’s Founding Executive Chairman & CEO Ryan Dewey Smith, and they spoke about this new affiliation model that Smith was in the process of creating: Inperium.

“Our goal is to help affiliates grow and succeed by accelerating their financial stability and sustainability,” says Smith. “Inperium is not an operationally focused organization. It is a support organization and orchestrator of the businesses.”

Inside CHOR’s path from affiliation to financial success and boosted care outcomes

What CHOR’s LaSorsa and other affiliates have learned about Inperium and the affiliation process are two simple truths. First, that it works. Second, much of what they thought was true about affiliation was not.

“The real challenge for us eight years ago was understanding the model, because it was a really novel concept,” LaSorsa says. “I recall numerous meetings with our board of directors, who ultimately would make the decision to affiliate, really trying to understand the model at the board level, the staff level and the community level.”

Smith and the Inperium team led a series of presentations to the CHOR board. In September of 2017, the CHOR board voted unanimously 17-0 in favor of affiliation.

Now an Inperium affiliate, CHOR saw many doors opening before them. As part of Inperium, they had:

• Access to Inperium’s expertise in assessing viability of programs and rate assessments
• Connections to other affiliates in the network
• Significant economies of scale, including lower costs for supplies, food and vehicles
• Back-office functions covered by APIS
• A restatement of assets to fair market value, which strengthened CHOR’s balance sheet

The benefits have been immense. With Inperium, CHOR:

• Increased their clients served from 1,250 in 2017 to 4,000 today
• Increased their programs from about 15 to 40+
• Reduced their administrative costs from just over 16% pre-affiliation to 10% post-affiliation
• Refinanced old debt under better terms
• Gained new lines of credit to repair and maintain old buildings, including one from their founding in 1884
• Upgraded technology systems, including EHR, HR, IT and training
• Adjusted salaries from conservative to competitive
• Increased their voice to influence mandates, regulations and legislature

Add it all up and CHOR’s finances are the best they’ve ever been. They’ve seen an increase in revenue to almost $38 million and completely flipped their ledger. Before affiliation, CHOR was operating an annual deficit approaching $1 million. For fiscal year ending June 30, 2024, net income was approximately $3.6 million — “the best in our 140-plus year history,” LaSorsa says.

“This affiliation model really works,” LaSorsa adds. “In my new role, as I’ve engaged with the other CEOs of the various organizations in our network, the same holds true. Our journeys and reasons for affiliating might be different. But the commonality is that all have greatly benefited from affiliation with Inperium.”