Although nursing home companies saw little overall growth in the number of facilities they operate, the industry saw strong gains in revenues last year, according to MODERN HEALTHCARE's Multi-unit Providers Survey.
Some 71 nursing home systems reported operating long-term-care facilities, according to the survey. Of those 71 systems, 55 are for-profit entities, one is operated by a Roman Catholic healthcare system, eight are run by other religious organizations, six are secular not-for-profit corporations, and one is a public institution.
Total operating income at the 71 nursing home systems rose 70.9% in 1993 to $554 million, compared with $324 million in 1992, the survey reported. For-profit nursing home systems reported dramatic growth in total operating income, increasing 66.6% to $494.1 million in 1993 from $296.6 million in 1992.
Average operating revenues at the nursing home systems rose 70.5% to $19.1 million in 1993 from $11.2 million in the previous year.
While the overall outlook for long-term-care facilities remains positive, experts say future growth will come through the continued development of specialty services including subacute care, home care and Alzheimer's programs.
Growth goes flat. Statistically speaking, there was virtually no overall growth in the number of nursing facilities or nursing home beds among the top 10 nursing home providers, the survey said.
For example, the top 10 nursing home chains reported operating 2,394 facilities with 273,273 beds in 1993, compared with 2,396 facilities and 273,446 beds in 1992.
Fort Smith, Ark.-based Beverly Enterprises, the largest U.S. nursing home provider, reported a 4% decrease in its number of facilities and beds, operating 801 facilities with 85,001 beds in 1993, compared with 838 facilities and 89,298 beds in 1992.
Tacoma, Wash.-based Hillhaven Corp., the second-largest nursing home operator, reported a 14% decrease in the number of facilities it operates to 301 with 37,402 beds in 1993 from 351 and 43,452 beds in 1992.
Hillhaven last year bought back the remaining 23 long-term-care centers it had leased from former parent company National Medical Enterprises for $112 million in cash (June 28, 1993, p. 34).
As part of the deal, NME retained more than 14 million shares of Hillhaven common stock, but the Santa Monica, Calif.-based psychiatric hospital chain no longer would be a lessor to Hillhaven.
The transaction, which was subsequently approved by shareholders, gave NME control of 25% of Hillhaven's fully diluted stock.
Since being spun off from NME in January 1990, Hillhaven had been buying back 115 nursing homes NME had retained and leased to the long-term-care chain. In May 1992, Hillhaven bought 11 facilities it had been leasing from NME for $39 million in cash.
Living Centers of America, by comparison, reported operating 219 nursing facilities with 19,372 beds in 1993, compared with 214 facilities and 19,190 beds in the previous year.
Also in June, Houston-based Living Centers purchased rival long-term-care company Vari-Care in a transaction involving some cash and some stock. Rochester, N.Y.-based Vari-Care operates 21 nursing homes with 2,469 beds.
The move was designed to help expand the company's services in Arizona and the Southwest.
Consolidation's effects. Although several nursing home chains kept busy through acquisitions and divestitures in 1993, overall consolidation among nursing home providers is one key reason for the limited growth in the industry, experts say.
Recent consolidation in the long-term-care industry includes Horizon Healthcare's $85 million purchase of Greenery Rehabilitation Group in October.
In December, Newport Beach, Calif.-based Regency Health Services, and Tustin, Calif.-based Care Enterprises agreed to merge in a deal valued at $120 million. And in January, Sun Healthcare, Albuquerque, N.M., bought subacute-care provider Wellesley, Mass.-based Mediplex Group in a cash and stock transaction valued at $320 million (Jan. 10, p. 3).
Subacute-care growth. Perhaps the
biggest area of long-term-care growth came in the industry's subacute-care segment. Subacute care, the area of care that lies between inpatient hospitalization and long-term nursing home care, was estimated to be a billion-dollar industry in 1993 and could generate revenues of as much as $10 billion by the end of the decade (April 25, p. 28).
Both hospitals and nursing homes reported operating subacute-care facilities in 1993, according to the survey.
In 1993, some 200 healthcare systems reported either owning, operating or managing a total of 4,188 specialty hospitals-a category that includes subacute care-with 494,811 beds, a 3.9% increase from the previous year.
Some 72 for-profit healthcare systems reported operating 3,507 freestanding specialty hospitals with 417,231 beds, compared with 3,392 facilities and 401,239 beds in 1992.
Specialty hospitals are defined by Medicare as either an independent stand-alone facility or a "hospital within a hospital," a unit located within an acute-care hospital but licensed separately from that facility.
Last month, Beverly expanded its long-term-care services to include subacute care after it signed a letter of intent to purchase Franklin, Tenn.-based American Transitional Hospitals in a deal valued at about $33 million (April 18, p. 4).
ATH operates five licensed long-term transitional hospitals in Dallas; Houston; Indianapolis; Phoenix, Ariz.; and Tulsa, Okla. The deal will allow ATH to expand its current model of treating subacute-care patients in acute-care facilities. Providers that treat subacute-care patients within acute-care hospitals and license that unit as a specialty hospital or hospital-within-a-hospital are eligible for higher, cost-based Medicare reimbursement.
However, HCFA intends to more closely scrutinize subacute care to help determine whether it's a legitimate reimbursable entity or merely a golden goose for providers.
Subacute-care providers, however, contend that subacute care is a much-needed service that will play a key role in future healthcare delivery.
"Our feeling is that the business of subacute care is a service that is going to be rendered," said Bob Crosby, ATH's chairman and chief executive officer. "We're going to position ourselves to be in the final setting that subacute care is going to be modeled under."