Integrated Health Services, a post-acute provider, has acquired scandal-plagued First American Health Care, the nation's largest privately held home-care company.
With the deal, IHS becomes the fourth-largest provider of home care in the country. IHS paid $154 million in cash for Brunswick, Ga.-based First American, with an additional $159 million to be paid contingent on several undisclosed factors in the period from 2000 to 2004.
IHS, based in Owings Mills, Md., also jumped through a number of hoops to compensate for First American's checkered past.
Formerly called ABC Home Health Services, First American and its founders were convicted of Medicare fraud in February and ordered to pay $9.9 million in restitution and fines, one of the largest sums in the history of Medicare fraud prosecution. Robert "Jack" Mills, the founder, was sentenced to 71/2 years in prison, and his wife and business partner, Margie Mills , was sentenced to two years and eight months.
As a result, Medicare payments to the company were suspended and it filed for Chapter 11 bankruptcy protection. IHS, which had earlier entered a merger agreement with the company, spent the past eight months waiting on bankruptcy court to approve the transaction.
The deal was further delayed by settlement negotiations among First American, IHS, HCFA and the U.S. Justice Department. The final settlement agreement p rovides that First American will pay $255 million to the federal government and that IHS will have no liability for the activities of the company prior to its acquisition.
IHS said First American will use the proceeds from the sale and contingent payments to cover the $255 million. IHS agreed to assume $33 million in unrelated debt.
For IHS, the wait appears to have been worth it. The agreement reflects an industrywide trend toward providing a continuum of care. With its aggressive push into the home-care industry, IHS is shoring up its opportunities to channel patient referrals through its own network, which includes more than 600 facilities in 40 states providing subacute, rehabilitat ion, respiratory therapy, skilled-nursing, hospice and diagnostic services.
"Home health is a critical component in our post-acute network," said Marc Levin, executive vice president of IHS. "It is one of the anchors in our netw ork. The size and geographic presence of First American will make us more attractive to managed-care plans, help reduce costs and allow us to provide care for patients through their full episode of care."
Levin said these advantage s outweigh concerns about First American's previous missteps. "First American's problems were related to cost-reporting issues," he said. "They have had no trouble from a clinical and financial standpoint."
First American runs m ore than 400 home-care agencies in 21 states. Its 1996 revenues are expected to top $400 million.
In addition to its post-acute services, IHS will now operate 600 home-care agencies in 24 states that are expected to churn out more t han $650 million in revenues each year. IHS posted revenues of $1.2 billion in 1995.