Psychiatric hospital chains endured another trying year in 1994 as the inpatient business continued to erode.
The industry, which is dominated by investor-owned chains, continued its trend of contraction, losing beds and freestanding facilities. According to MODERN HEALTHCARE's Multi-unit Providers Survey, the number of beds dropped 5.7% to 28,554.
The number of hospitals owned by chains dropped 6.9% to 324, the survey reported.
The only segment reporting gains was secular, not-for-profits, which reported a 15.3% jump in psychiatric beds to 2,234 and a 7.7% increase in psychiatric hospitals to 28. However, because not-for-profit systems are such a small part of the industry, that increase resulted from the addition of only two hospitals in 1994.
Not surprisingly, industry losses increased in 1994. Affected by financial troubles at two big chains, psychiatric providers reported losses of $209.1 million, up from losses of $102.5 million in 1993. Charter Medical Corp., the nation's largest psychiatric hospital chain, reported a net loss of $59.6 million for its fiscal year ended Sept. 30.
In addition, National Medical Enterprises reported a loss of $425 million for fiscal 1994 ended May 31, most of which stemmed from write-downs and a federal fraud settlement of $379 million.
The psychiatric chains responding to the survey reported an 8.8% increase in revenues to $1.8 billion in 1994.
The industry has historically been dominated by for-profit systems. In 1994 they operated 88% of the psychiatric hospitals, according to the survey.
Investor-owned systems reported operating 24,998 beds, a 7.3% drop from 1993. They reported owning 281 facilities, an 8.5% drop from the previous year.
Actually, the year's results likely were slightly worse than that, but some chains didn't report at all because of financial problems. Among those are Glenbeigh, based in West Palm Beach, Fla., and Nu-Med, based in Calabasas, Calif., which went through bankruptcy reorganization in 1994. Both were in the top 15 of last year's Multi-unit Providers Survey but are absent this year.
In 1993, the industry reported a 5% drop in beds and a 10% drop in hospitals over 1992.
An industry in flux.
The psychiatric industry has been in transition since the early 1990s, when overbuilding and charges of fraud rocked providers, especially those in Texas.
One result was the departure of NME-now called Tenet Healthcare Corp.-from the psychiatric business in 1994. NME had been one of the top five psychiatric systems since the 1980s when the investor-owned chains began pouring millions of dollars into building programs.
NME's exit, hastened by its settlement of fraud charges with state and federal authorities, shifted its assets to other providers. Although NME closed some hospitals, it sold most of them to Charter. Tenet kept four psychiatric hospitals that are on the campuses of its medical/surgical facilities.
Atlanta-based Charter added 27 psychiatric hospitals in its fiscal year, which ended Sept. 30. In all, Charter bought 40 NME psychiatric hospitals for $171 million. Because of antitrust investigations, the final sale of 10 of them was held up until December, after Charter's fiscal year ended.
NME's divestitures also gave rise to another new company, formed this year. Former Hallmark Healthcare Corp. executive James McAfee bought six psychiatric hospitals from Tenet and formed ValueMark Behavioral Healthcare Centers, based in Atlanta. Hallmark, a rural acute-care hospital chain, was acquired by Community Health Systems, Houston, last year.
Despite some new names like ValueMark, the industry shakeout may not be over, experts say.
"I think there's going to be a couple of more rounds," said Howard Gershon, executive vice president of Lammers+Gershon Associates, a Reston, Va.-based healthcare consulting firm. "The inpatient business is becoming so small."
Many of the companies responding to the survey spent much of 1994 retooling. For example, Comprehensive Care Corp. and Healthcare America, both top 10 psychiatric systems, continued to grapple with financial restructurings. A group of Newport Beach, Calif.-based CompCare bondholders recently tried to force it into bankruptcy (March 6, p. 23).
Austin, Texas-based Healthcare America, which itself emerged from bankruptcy reorganization more than a year ago, is working with its bankers to reduce its debt load.
Systems operating freestanding psychiatric hospitals
System type * 1994 1993 change 1994 1993 change
For-profit (23) 24,998 26,961 -7.3% 281 307 -8.5%
Catholic (11) 1,276 1,347 -5.3 14 14 -
Other religious (1) 46 46 - 1 1 -
Secular not-for-profit (20) 2,234 1,937 15.3 28 26 7.7 Public (0) - - - - - -
Total (55) 28,554 30,291 -5.7% 324 348 -6.9%
* Number reporting in parentheses; includes all systems reporting psychiatric hospitals in either year.
Modern Healthcare / May 22, 1995