PHILADELPHIA — When Elwyn was founded in Germantown in 1852, as the Pennsylvania Training School for Idiotic and Feeble-Minded Children, it was well ahead of its time, teaching children with intellectual disabilities skills they could use in the community.

The large human services nonprofit has become a lifeline and a beacon of hope for thousands of parents and families of those with autism and other developmental disabilities.

But the 168-year-old institution is also facing a moment of financial reckoning as it struggles to keep up in challenging times.

Elwyn, which employs more than 5,000 people, lost money in the last three years. It looks set to lose millions of dollars again this year. Its biggest challenge has been adapting as states change the way they pay groups such as Elwyn.

On top of that comes the coronavirus pandemic, which has wreaked havoc on the U.S. economy and made it harder for Elwyn to renew a $45 million line of credit it really needs to sustain its operations.

“The pressure on Elwyn has materially increased as a result of COVID-19,” Charles S. McLister, Elwyn’s chief executive, said on a conference call with bond investors on May 18. “We recognize how challenging it will be in the lending market, particularly in the health care industry, given the volatility and uncertainty that the pandemic has produced.”

Elwyn served 24,107 people last year, including 1,032 in group homes or other residential settings — not including a behavioral health nonprofit acquired in late 2018.

McLister, who replaced a CEO who had been in charge for 26 years, expressed confidence that Media-based Elwyn will not run out of money as it plays catch-up to the new payment model. That system requires providers such as Elwyn to bill for separate services — sometimes in 15-minute increments — and then wait for the money, rather than getting paid up front, as used to be the case.

“What’s happened is the market has evolved around Elwyn, but Elwyn hasn’t really evolved its practices, its technology, and we’re really feeling the impact of that,” McLister said in an interview earlier this year. The depth of the problem was not apparent until early last year, he said.

Elwyn’s biggest troubles are in New Jersey, which last year changed the way it pays for services. If that subsidiary can’t be fixed within a year, Elwyn will exit those operations rather than endanger the rest of the business, McLister said. If it came to that, Elwyn said, it would work with the state to ensure that the residents could stay in their homes.

Getting paid

New Jersey, where Elwyn operates 51 group homes, is the latest state to switch to the new reimbursement model that has caused Elwyn to stumble. McLister said a significant portion of Elwyn’s $11.6 million operating loss in fiscal 2019, came from its inability to collect what it was owed in New Jersey.

Elwyn has struggled in the Garden State because it failed to add needed technology and personnel with skills in service coordination and billing, collections and other areas soon enough. The state announced the shift to what is called fee-for-service reimbursement in 2013 but didn’t complete that effort until last year. The old system was sometimes called cost-based reimbursement, which meant that costs were covered plus an administrative fee.

“They were late in the transition,” said Valerie Sellers, chief executive of the New Jersey Association of Community Providers.

The difficulty of the new model, which has been used in physical health care for decades, is not just that hands-on caregivers have to document discrete services and then the providers have to bill for them. That’s a big challenge by itself for an industry with high staff turnover because of low pay.

Also, under the old system, if a group home had four residents and one of them left, the state would not automatically cut off payments for the resident who left, said Robert Stack, founder and CEO of Community Options Inc., which operates 550 group homes across the country including 150 in New Jersey and 120 in Pennsylvania.

Now Community Options, Elwyn, and other providers have to worry about admissions — filling beds.

Stack said Community Options started preparing for the change in New Jersey in 2013 and benefited from its experience in Pennsylvania, which completed the change earlier. “It’s like a slow-moving train. ‘Oh, no, this is going to run over my foot,'” Stack recalled thinking at the time.

Path to profitability

To dig out of its hole in New Jersey, Elwyn is trying to undertake a swift modernization that includes “a rewiring of our back-office systems.” It also hired a new chief information officer and a new head of the New Jersey business, McLister said. Both of them have experience at the New Jersey Division of Developmental Disabilities, which regulates and pays Elwyn for services there.

The nonprofit has also made other moves to shore up its finances and reduce its nearly $60 million in long-term debt. It sold a University City building for $16 million. It is trying to sell the site of the former Sleighton Farm School in Glen Mills and a campus in Vineland, N.J.

Elwyn is also working on a plan to consolidate operations on its main campus. The goal is to reduce its size to likely no more than 100 acres (from 300) by selling some for open space and some to developers. And there are plans to move 200 administrative jobs from Pennsylvania to Camden to take advantage of a $39 million state tax credit.

Reducing the size of the Media campus is part of a broader goal to move toward the community. “This is a campus that was built as an institution. It hides people away, whether that’s the intention or not,” McLister said.

Elwyn is also making operational changes to save money. It used to employ 28 occupational therapists in an early intervention program in Philadelphia. This year it gave them the option of becoming contractors and keeping their caseload or trying to land a job with one of the many agencies that Elwyn uses as subcontractors.

Elwyn has audited some of the subcontractors under the same early intervention program, which Elwyn manages for the Pennsylvania Office of Child Development and Early Learning, and deducted from current payments to make up for alleged past overpayments. That contract is worth $80 million in annual revenue, but has been particularly challenging because the state doesn’t make any payments to Elwyn between May and October.

‘Life-changing’

The financial stress at Elwyn has not trickled down to Shanita Rhodes, whose son, Clinton Bullock Jr., is a student at Davidson School, a day school on Elwyn’s main campus that serves more than 400 children aged 3 to 21 who have a wide range of intellectual and developmental disabilities and autism.

Attending Davidson has meant a two-hour bus ride from home in Northeast Philadelphia for Clinton Bullock Jr., who has autism and started at Davidson in fourth grade. He was in 12th grade when COVID-19 stay-at-home orders abruptly ended those trips in March.

The arduous trip was worth it, Clinton’s mother, Shanita Rhodes, said. “It was life-changing.”

Online learning since March has worked well for Clinton, Rhodes said. “I have two other kids in school. He’s doing the best. I think it’s because Elwyn is making sure they reach out a lot more.”

Still, as Elwyn struggles to find steady itself, its actions may seem harsh to those who depend on their services.

Some programs, such as a child care center for typically-developing children on the Media campus, won’t reopen after the COVID-19 restrictions end. That facility, which served about 60 children, had an operating loss of $174,000 last year, Elwyn said. The nonprofit told parents in a May 11 letter that efforts to bring in another provider had been unsuccessful.

“It felt like a heartless decision from an organization like Elwyn,” said Amy Acquarola, whose two sons attended the center. “It seems like an easy out for them. They didn’t have to answer to staff in person. They didn’t have to answer to families in person.”

Those who have worked for Elwyn and have seen the large legacy institution evolve over the years think there’s still a fighting chance.

One of them is Paul Spangler, an independent forensic psychologist in Philadelphia who worked there in the 1970s.

“It is hard because it is so large, but on the other hand, that’s an advantage, as well. They have facilities all over. They are able to attract top people in the field, and they still have the name.”

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