Psychiatric hospital systems endured another year of turmoil in 1995 as nearly all the chains went through major changes or restructurings.
Charter Medical Corp., Atlanta, acquired a managed-care company and changed its name to Magellan Health Services.
Community Psychiatric Centers, Las Vegas, made plans to split the company in two through a stock offering.
Ramsay Health Care, New Orleans, did split up, spinning off Ramsay Managed Care and leaving the company with 17 hospitals in 11 states.
Healthcare America, Austin, Texas, went though another bankruptcy reorganization.
Vendell Healthcare, Nashville, Tenn., nearly sold out to another company as it struggled through financial woes.
Two of the top psychiatric chains in 1995 are better known as acute-care chains. Columbia/HCA Healthcare Corp., Nashville, and Universal Health Services, King of Prussia, Pa., finished among the top 10 psychiatric providers, signaling the growth of integrated health systems as well as the downsizing of single-specialty chains.
Universal has been a perennial entry in the top 10 psychiatric chains through most of the 1980s and 1990s, but Columbia's ranking in the current survey has risen with its overall size. The company has built a strategy around owning all parts of local integrated health systems, including psychiatric operations. To increase efficiency, however, Columbia often consolidates psychiatric facilities with nearby acute-care hospitals.
In spite of continuing consolidation, the psychiatric sector showed some growth, according to MODERN HEALTHCARE's 1996 Multi-unit Providers Survey. The 55 responding systems with psychiatric facilities said they operated 29,219 beds, a 1.3% increase compared with 1994. Those systems operated 337 hospitals, up 1.2% from the prior year.
That compares with a 5.7% drop in psychiatric beds and a 6.9% dip in facilities in last year's survey.
Much of the growth in this year's survey came from six systems that reported operating 19 hospitals in 1995, compared with none in the previous year.
The survey also shows the psychiatric hospital business continues to be dominated by investor-owned chains.
Psychiatric hospitals have spent most of the past five years trying to get by with less-fewer patients and reduced reimbursement-a trend that may not end soon. Magellan, the nation's largest psychiatric provider, recently reported that while patient days were up, revenues per patient continue to fall. In the six months ended March 31, revenues per patient day were $502, compared with $530 in the year-ago period.
The chain, formerly known as Charter, also has a new strategy, describing itself as the nation's largest integrated behavioral healthcare company. It now operates three units: hospitals, managed-care contracting and government contracting.
Magellan officials decided to merge with Green Spring Health Services, a major managed-care company, so it could participate in capitated contracting with commercial and government payers. Many payers are carving out behavioral healthcare services and contracting with managed-care companies for that care on a per-member, per-month basis.
Magellan operated 100 hospitals with 9,197 beds in 1995, compared with 99 hospitals and 9,166 beds in 1994, the survey found.
In December, Magellan invested $73 million for a 51% interest in Columbia, Md.-based Green Spring, the fourth-largest managed mental healthcare company. Green Spring was owned by six Blue Cross and Blue Shield plans, giving the hospital company a strong tie to a major brand-name payer. Green Spring also brought to the table 12 million enrollees nationwide.
Downsizing was a continuous theme at Community Psychiatric, which terminated 314 hospital workers and 65 corporate and regional employees during its fiscal year. The chain reported operating 29 hospitals with 2,845 beds in 1995, down from 36 hospitals with 3,435 beds in the previous year.
The company reported a net loss of $41.6 million, or 95 cents per share, in the fiscal year ended Nov. 30, 1995, compared with net income of $10.2 million, or 24 cents per share, in the previous year. Total revenues grew 19% to $509.2 million. The 1995 figures include a $45 million charge to settle class-action securities lawsuits.
However, management apparently wasn't closing unprofitable hospitals fast enough. Last November, Kay Seim, president of the company's psychiatric operations, abruptly resigned. She later was blamed by CPC executives for not stemming the red ink fast enough. During the fiscal year, the company's psychiatric hospitals in the U.S. saw revenues drop 10%, or $26.7 million.
William Hale, a former Charter executive who joined CPC only months before Seim's departure, was tapped to be her successor.
He is expected to head a spin-off, which will move all of CPC's domestic psychiatric operations into a separate, publicly traded company. At press time, the company had not yet filed documents with the Securities and Exchange Commission concerning the spin-off.
Officials were awaiting the outcome of the proposed sale of the 15 United Kingdom psychiatric hospitals, which have been profit leaders for the company. If those are sold and the spin-off accomplished, what had been a subsidiary-American Transitional Hospitals-will be the corporation's main business. At the end of its fiscal year, CPC operated 14 long-term, critical-care hospitals through American Transitional.
A flurry of buying and selling characterized the unsettled field. For example, Nashville-based Behavioral Healthcare Corp. agreed to buy five hospitals from Mental Health Management, McLean, Va. That deal is expected to be completed by June 1.
Earlier in 1995, Mental Health sold its contract management business to Horizon Mental Health Services, a Denton, Texas-based company that completed an initial public offering in March 1995.
"We're excited about the opportunities being presented to us," said Ed Stack, the company's president and chief executive officer. Unlike Magellan, Behavioral doesn't plan to venture into managed care. "We're enjoying success in working with all managed-care providers," Stack said.
A new entry on MODERN HEALTHCARE's list is Liberty Healthcare Management Group. The Boston-based company acquired the behavioral health services division of Sun Healthcare Group for $40 million in 1995. That deal included five facilities with 564 beds and 20 outpatient centers.
Meanwhile, psychiatric chains
are tapping growth markets in outpatient care.
For example, Peabody, Mass.-based Pioneer Healthcare bought a company that provides behavioral healthcare programs to the gaming industry. The company's big clients include MGM Grand Hotel in Las Vegas and Boyd Gaming Corp., which owns the Stardust and several other casinos.
Gambling is a booming area for psychiatric providers, and at least seven states use funds generated from gaming to support outpatient treatment programs for compulsive gamblers.