Much of the growth reported by rehabilitation hospital providers in 1994 can be directly attributed to the for-profit sector.
Eliminating figures from HealthSouth Corp. and Continental Medical Systems-the nation's two largest for-profit rehabilitation hospital chains-would have made overall growth figures from the U.S. rehabilitation industry in 1994 considerably less impressive.
The 41 rehabilitation providers responding to this year's MODERN HEALTHCARE Multi-unit Providers Survey operated 152 hospitals in 1994 with a total of 11,138 beds, a 14.5% increase from the 116 facilities and 9,724 beds operated in 1993.
Among the participants in this year's survey, seven for-profit hospital chains operated 115 rehabilitation hospitals with 7,914 beds in 1994, compared with 82 hospitals and 6,829 beds in the previous year.
In contrast, nine Roman Catholic-owned hospital systems operated 10 rehabilitation hospitals and 1,159 beds in 1994, compared with nine hospitals and 1,079 beds the previous year.
Some 17 secular not-for-profit hospital systems operated 18 facilities with 1,307 beds last year, compared with 17 hospitals operating 1,145 beds in 1993.
Rehabilitation providers attributed the growth to specific changes occurring within healthcare. For example, providers are concerned that HCFA will alter or eliminate the current cost-based Medicare reimbursement for rehabilitation hospitals and replace it with a prospective payment system.
As a result, many of them are developing ancillary services to complement the bulk of rehabilitation services they currently offer.
Two rehabilitation chains that reported increases in the numbers of facilities and beds they operated last year were HealthSouth and Continental.
HealthSouth, now with 386 hospitals and units in 36 states, reported the number of freestanding hospitals it operated jumped 66% to 63 in 1994 from 38 in 1993. The number of staffed beds it operated increased 23% to 3,974.
During the past 12 months, the Birmingham, Ala.-based company purchased several prominent rehabilitation companies and alternate-site providers.
The company bought its neighbor and rival rehabilitation chain ReLife last September for $190 million. ReLife operates 46 freestanding rehabilitation hospitals in 12 states.
However, the Federal Trade Commission temporarily held up the deal last October by issuing a second request for information, which typically signifies increased antitrust scrutiny.
The FTC finally approved the deal last December after HealthSouth agreed to divest one hospital in Tennessee and two contract management agreements in Alabama and Charleston, S.C.
The proposed consent agreement ended the FTC's four-month probe of the merger-believed to be the first to target rehabilitation hospitals. But it wouldn't be the last time the FTC would closely review a HealthSouth deal.
A second deal-this one involving HealthSouth's February purchase of NovaCare's rehabilitation hospital division for $215 million-also has caught the attention of FTC officials.
In March, the federal agency requested additional information on the deal, in which HealthSouth would buy King of Prussia, Pa.-based NovaCare's 11 hospitals and 12 rehabilitation facilities.
The company also expanded into the outpatient surgery business earlier this year, acquiring Atlanta-based Surgical Health Corp. for $155 million in stock.
Continental adds on.
Meanwhile,Mechanicsburg, Pa.-based Continental Medical, the nation's No. 2 rehabilitation hospital chain, reported a 5% increase in the number of facilities it operated last year. The company added two hospitals, bringing its total to 36, and increased its staffed-bed total 3% to 2,544.
And like HealthSouth, Continental had a run-in with the federal government in 1994.
Last October, officials from the Justice Department made surprise visits to more than half the company's hospitals and questioned several employees about Continental's Medicare billing practices (Oct. 31, 1994, p. 4).
Since then, the company has revealed little about the ongoing investigation.
For its fiscal year ended June 30, 1994, Continental lost $35.5 million, compared with net income of $19.5 million in fiscal 1993.
In March 1995, Horizon Healthcare Corp. agreed to buy Continental in a stock deal valued at $502 million (April 10, p. 2), expanding into the rehabilitation and acute-care hospital contract management businesses.
Other chains in addition to Horizon entered the rehabilitation hospital industry for the first time in 1994. For example, Sun Healthcare Group, an Albuquerque, N.M.-based nursing home chain, operated four rehabilitation hospitals last year with a total of 130 beds.
Tenet Healthcare Corp., formerly National Medical Enterprises, was among the remaining companies that reported data for rehabilitation hospitals. Tenet operated six hospitals in 1994, down one from the previous year. The company divested 28 of its rehabilitation hospitals to Continental in 1993.
Healthcare systems operating U.S. rehabilitation hospitals
Ranked by total staffed beds
1994 1993 1994 1993 states
HealthSouth Corp. 3,974 3,220 63 38 20
Continental Medical Systems 1 2,544 2,474 36 34 15
National Medical Enterprises 2 555 747 6 7 4
Advantage Health Corp. 388 388 3 3 1
Covenant Health Systems 305 305 1 1 1
Daughters of Charity National Health System 3 269 269 1
Healthcare America 263 - 2 - 2
Baylor Health Care System 172 172 2 2 1
MetroHealth System 172 172 1 1 1
Main Line Health 164 164 2 2 1
Jewish Hospital HealthCare Services 155 95 2 1 2
Albert Einstein Healthcare Network 152 152 1 1 1
Catholic Health Corp. 4 148 148 2 2 2
Sun Healthcare Group 130 - 4 - 4
Memorial Healthcare System * 129 - 1 - 1
Detroit Medical Center 128 128 1 1 1
Baptist Medical System 120 120 1 1 1
Medlantic Healthcare Group 120 - 1 - 1
Sisters of St. Joseph Health System 96 96 1 1 1
Department of Health and Hospitals-
Boston City Hospital 90 82 1 1 1
Sisters of Charity of the Incarnate Word 80 - 1
SSM Health Care System 80 80 1 1 1
Riverside Health System 75 - 1 - 1
Baptist Memorial Health Care System 68 - 1 - 1
DCH Healthcare Authority 65 65 1 1 1
Casa Colina Centers for Rehabilitation 64 64 1 1 1
Greenville Hospital System 64 64 2