U.S. nursing home systems witnessed a continued pattern of slow, steady growth in 1994. But several of the nation's larger long-term-care chains reported standout revenues.
Although the overall outlook for long-term care remains strong, analysts say companies are combining nursing home care with other more profitable healthcare services, such as rehabilitation and subacute care.
According to MODERN HEALTHCARE's 1995 Multi-unit Providers Survey, nursing home systems reported an increase in the number of facilities and beds they operated last year.
Thirty nursing home systems reported financial data for both fiscal 1994 and 1993 in this year's survey.
Those 30 systems reported that their total operating income rose 38.3% in 1994 to $833 million, compared with $602.6 million in 1993. In addition, their total net patient revenues rose 19.7% to $9 billion in 1994, compared with $7.5 billion in 1993.
Of the 30 systems, 25 were for-profits. Those investor-owned systems reported a 39.5% increase in total operating income to $824.3 million in 1994, compared with $591 million in 1993. In addition, their total net patient revenues rose 19.6% to $8.4 billion in 1994, compared with $7 billion in 1993.
Five non-Catholic religious nursing home systems reported a 24.1% decrease in total operating income to $8.8 million in 1994 from $11.6 million in 1993. In addition, their total net patient revenues rose 20.5% to $643.6 million, compared with $534.1 million in 1993.
Nursing home officials contend that it's becoming increasingly difficult for providers to generate profits by relying solely on traditional long-term-care services.
That, compounded with HCFA's proposed plan to develop a prospective payment system for long-term care, has encouraged several of the nation's largest providers to plan for the future.
Beverly Enterprises, Horizon Healthcare Corp., Sun Healthcare Group and GranCare, for example, added alternate-site services through acquisitions, mergers and joint ventures.
Fort Smith, Ark.-based Beverly-the nation's largest nursing home chain-expanded into subacute-care services by purchasing American Transitional Hospitals, based in Franklin, Tenn., for $33 million in stock (April 18, 1994, p. 4).
ATH treats subacute-care patients by renting out separate units within acute-care hospitals. The company licenses the units as separate hospitals.
More recently, Beverly announced in April that it plans to spin off at least 80% of its Pharmacy Corporation of America division to shareholders as a dividend (April 10, p. 4).
Beverly's pharmacy division has been one of its most successful subsidiaries and is expected to post operating revenues of more than $500 million in 1995. Company officials said the spinoff would allow Beverly to borrow additional funds from PCA to repay debt and for other corporate purposes.
Last year, Beverly reported a 14.5% increase in net operating income to $253.7 million. Beverly's net patient revenues rose at a slower rate, increasing just 2% to $2.9 billion in 1994, according to the survey.
Horizon Healthcare Corp., meanwhile, made a number of significant moves to expand its array of alternate-site services. The Albuquerque, N.M.-based chain completed its purchase of Newton, Mass.-based Greenery Rehabilitation Group, for $85 million.
From the deal, Horizon projected savings of $7 million through the consolidation of its operations with Greenery's. The Greenery deal brought Horizon into the field of rehabilitation care and allowed it to eliminate duplicate corporate and administrative overhead.
Greenery manages 20 rehabilitation facilities nationwide.
The deal was held up for several months after officials from the Service Employees International Union and patient advocacy groups lobbied against the purchase, arguing that Horizon's entrance into the Massachusetts nursing home market would lower the overall quality of nursing home care there (Jan. 3, 1994, p. 17).
Horizon finally cleared that hurdle last February. The company was forced to settle for an 18-month probationary license and pay the state more than $1 million in related costs.
More recently, Horizon was involved in a hostile takeover attempt of Hillhaven Corp., the nation's second-largest nursing home chain. After Hillhaven rejected and ignored Horizon's buyout offers of $1.4 billion and $1.8 billion, respectively, Horizon last month purchased Continental Medical Systems, a Mechanicsburg, Pa.-based rehabilitation hospital chain, for $502 million in stock.
Continental provides contract therapy services for acute-care hospitals and operates 37 rehabilitation hospitals, two areas of business with which Horizon is unfamiliar.
For fiscal 1994, Horizon's net operating income soared 115% to $16.6 million, or 91 cents per share, compared with $7.7 million, or 62 cents per share, in fiscal 1993. Net patient service revenues climbed 62% to $375 million. Company officials attributed the earnings to the rapid growth of its specialty medical services, which accounted for about 38% of its total revenues for the year.
Hillhaven late last month accepted a $1.9 billion buyout offer from Vencor, a Louisville, Ky.-based operator of 35 long-term hospitals.
Their joint merger agreement will result in the formation of one of the country's largest healthcare companies, with combined revenues of about $2.1 billion. The boards of directors at both companies have approved the merger, which is expected to be completed by the third quarter of 1995.
"No other single provider will be able to match the benefits from combining acute care, long-term hospitals and skilled-nursing facilities with contract services covering a full range of respiratory therapy and rehabilitation services," Vencor and Hillhaven Chairmen W. Bruce Lunsford and Bruce Busby said in a joint release.
Hillhaven's net operating income for 1994 soared 287% to $67.5 million,
compared with $17.4 million during the year-ago period. However, net patient revenues dipped 6.5% to $1.2 billion.
Vencor isn't the only specialty company to capitalize on the profitability of alternate-site services.
Integrated Health Services, an Owings Mills, Md.-based long-term-care provider and a pioneer in the subacute-care industry, is growing at a similarly impressive rate.
Although the federal government continues to scrutinize whether subacute care should receive its own level of Medicare reimbursement, IHS added 77 facilities and 10,000 beds to its so-called "post acute-care network."
IHS now provides subacute care and long-term care through 192 facilities with 25,000 beds in 30 states.
"We're thinking in terms of building networks, not converting nursing home beds into subacute-care beds," IHS Vice President Mark Levin said.
The company's net income for fiscal 1994 doubled to $31 million, or $1.73 per share, compared with $15.5 million, or $1.18 per share, in 1993. Revenues jumped 142% to $684 million.