Robert N. Elkins, M.D., president and chief executive officer of Integrated Health Services, is catching his breath after a
$1 billion buying spree over the last four months in which his subacute-care company moved into the home-care, rehabilitation and assisted-living markets.
"We saw that the subacute industry was maturing and its margins were going down," Elkins said of his strategy. "We need to treat across a wide spectrum of services because providers will be needed to take risk with payers and large payers will want to deal with fewer providers.
"If we have a full spectrum, then we can cut the length of stay and shift patients down to the lower cost setting, which we now think is home care," he said.
Elkins is among the latest-and the loudest-to chant the long-term-care industry's new mantras of "continuum of care" and "one-stop shopping."
Like acute hospitals before them, long-term-care providers are being pressured to overhaul the delivery of their services.
Independent, not-for-profit nursing homes are busy forming networks that offer wide geographic coverage and a range of services to purchasers and payers (Aug. 5, p. 108). Hospitals are also expanding their reach through partnerships with home-care agencies (See related story, p. 38).
Meanwhile, for-profit long-term-care companies like IHS, Genesis Health Ventures and ManorCare Health Services have been steadily strengthening and aggressively promoting themselves on both Wall Street and Main Street as purveyors of post-acute networks, not just traditional nursing homes.
They're striving to build networks through acquisitions and partnerships that will move patients efficiently from one setting of post-acute care, such as assisted living, to another, such as skilled nursing.
"Continuity ideally improves the quality of care by enabling medical records to be passed on from one service to another," said Connie Evashwick, director of the Center for Health Care Innovation at California State University in Long Beach. "Financially, the more services an entity controls, the greater potential it has to save money by eliminating duplication and feeding its own services with referrals."
Companies are aiming to please consumers who are clamoring for more senior-living options and managed-care organizations that want administratively simple contracting arrangements.
They also suspect that a broader base of services will help them better manage risk and costs under capitated contracts and under an anticipated prospective payment system for post-acute services.
"There's higher demand, and companies want the ability to secure other sources of revenues beyond the inpatient side," noted Margo Vignola, a first vice president with Merrill Lynch & Co.
Elkins' repositioning of IHS exemplifies the industrywide scramble to shore up a range of services and referral sources.
This fall, IHS acquired five home-care companies, including First American Health Care, signed a definitive merger agreement with Coram Healthcare and picked up a rehabilitation provider serving the Carolinas.
Elkins also worked to complete the sale of IHS' pharmacy division to Capstone Pharmacy Services for $150 million, raised $10.4 million through the public offering of IHS' assisted-living division and negotiated an exclusive provider agreement with MedPartners, the nation's largest physician practice management company.
As a result of the acquisitions, Owings Mills, Md.-based IHS, which made its name in subacute care, is now one of the country's largest home-care providers, providing post-acute services at more than 1,000 sites in 47 states. When completed, the acquisitions are expected to more than double the company's annual revenues to $2.5 billion. The company reported fiscal 1995 revenues of $1.2 billion.
Other companies are similarly broadening their base of services and pursuing relationships with physician groups and hospitals, which are the primary referral sources for post-acute providers.
Taking more of a regional focus, Kennett Square, Pa.-based Genesis Health Ventures has been building five networks in the Northeast and Florida. Begun in 1985 with an emphasis on skilled nursing, the company quickly began branching out in an effort to "focus on the whole patient, not the acuity level," said Michael Walker, the company's founder and CEO.
Most recently, Genesis completed a $223 million acquisition of Geriatric and Medical Cos. in Philadelphia. It also has announced plans to buy long-term-care operator National Health Care Affiliates for $133.6 million and NeighborCare Pharmacies, a privately held infusion therapy and pharmacy company, for $57.3 million.
Genesis now operates a total of 150 eldercare centers, seven home-care agencies, 12 institutional pharmacies and eight assisted-living communities. The company also manages 265 rehabilitation services contracts. It reported 1995 revenues of $486.4 million.
Earlier this year, the company consolidated its services for seniors under the name Genesis ElderCare. It then launched an advertising campaign targeted at its local markets and designed to emphasize the continuity of the company's services.
With much of its service network in place, Walker said a priority for the company is to gain more control over referral sources. Currently, he said the company operates 18 primary-care clinics, but he would like to add hundreds of physicians.
Future physician deals could mirror a recent agreement with Doctors Health System, he said. Lanham, Md.-based Doctors includes 350 affiliated primary-care physicians and more than 800 specialists in Maryland and Northern Virginia. Under the agreement, Genesis Health acquired a 10% minority interest in the system for about $10 million.
Like Genesis, Gaithersburg, Md.-based ManorCare has consolidated its services under one name, ManorCare Health Services. In September it launched its own $1.5 million ad blitz to cast the company as a national, full-service provider.
Founded in 1959 as a nursing home operator, ManorCare now has about 180 managed-care contracts and operates more than 200 facilities in 28 states. Its services include assisted living, Alzheimer's specialty care, skilled nursing and rehabilitation.
"Those are for-sure growth areas for us," said Greg Miller, ManorCare's vice president for marketing. "We are changing with the times and as the needs of customers change."
Miller said ManorCare has 45 to 50 assisted-living projects in development and plans to offer 8,000 assisted-living beds in the next three to five years. The company expects to post total 1996 revenues of $1.2 billion.
Ken Noonan, ManorCare's vice president for ventures and alliances, said the company wants to establish more relationships with hospitals.
"The hospitals are seeking our expertise in the development of assisted-living and skilled-nursing facilities," he said. "It's good for us because they control the step-down of services through discharges and we can align ourselves with them."
Noonan said ManorCare has formed joint ventures with Kettering (Ohio) Medical Center and Fitzgerald Mercy Hospital in Darby, Pa., to jointly own and manage skilled-nursing facilities in their service areas.
Companies entering the market today are taking a well-rounded approach from the get-go.
Boston-based Frontier Group, which turns 2 years old next month, early on embraced the continuum-of-care concept, or what Chairman and CEO Jonathan Sherwin refers to as the company's "extended medicine model."
Sherwin, former president of Mediplex Group, said Frontier has developed a little more than half its targeted network. Currently, about 6,000 patients a day receive care at Frontier's 16 skilled-nursing facilities and its rehabilitation, home-care and respiratory therapy divisions. The company has negotiated 85 contracts with 11 managed-care organizations.
While most of Frontier's operations are now in Connecticut and Massachusetts, Sherwin said he wants to establish a greater presence in Rhode Island and be treating 15,000 to 20,000 patients a day by the latter part of 1998 or 1999. In fiscal 1995, Frontier reported revenues of $38 million. It had annualized revenues of $110 million as of Sept. 30, the end of its third quarter.
"We are going to match the intensity of services provided to the acuity of the patient in the most cost-effective way to get the right outcome for the patient," Sherwin said. "We're allowing patients to proceed out of the hospital more quickly."
Mechanicsburg, Pa.-based Balanced Care Corp. similarly has been following a multipronged agenda since its inception in April 1995.
Brad Hollinger, a former vice president of contract services and chief development officer at Continental Medical Systems, formed the company with the intent of building on a foundation of assisted-living facilities.
The company recently acquired Foster Health Care Group in Springfield, Mo., for $44.5 million and has secured five managed-care contracts. As a result, Balanced Care now serves markets in Missouri, Pennsylvania and Wisconsin through 11 assisted-living communities, 10 skilled-nursing facilities, an institutional pharmacy, a rehabilitation provider and a home-care agency. The company expects to report 1996 revenues of $49 million.
Hollinger has brought the range of his services together in campuslike settings such as one in Springfield, Mo., where patients have access to a skilled-nursing facility, a subacute-care facility and an assisted-living facility.
"When people age . . . . they require rehabilitative care at some time, and we want to be positioned to capture the additional revenue stream," said Hollinger, who hopes to take the company public in the next one to two years.
"The stand-alone, assisted-living provider is focused on acquiring as many assisted-living facilities as possible," Hollinger said. "They end up losing patients as their patients age. We don't want to lose that revenue."
A number of factors have inspired these companies to offer more than one point in the continuum of care.
The burgeoning numbers of elderly are providing one of the strongest incentives.
In a report on the long-term-care industry, Merrill Lynch warned that as the country's 81 million baby boomers age, more than 20% of the population will be over age 65 by 2030. Only 12% of the population is currently over age 65.
That means an additional 37 million people will soon be looking for someone to meet their long-term-care and rehabilitative needs.
Every post-acute segment stands to gain from the surge. Skilled nursing is an $80 billion business today and, according to the report, demand for nursing home beds will likely outstrip supply within 10 years. Today, the average occupancy rate for the nation's more than 16,000 nursing homes with some 1.7 million beds is 92%.
At the same time, baby boomers are calling for alternatives to the nursing homes where their parents spent their twilight years.
"Everyone wants something different than a nursing home," said Dorothy Howe, acting manager of health advocacy services for the American Association for Retired Persons. An AARP survey found that 83% of 1,300 people age 50 and older would prefer to age at home.
Merrill Lynch estimates such demands will help grow both the
$15 billion rehabilitation industry and the $30 billion home-care industry by 15% over the next decade.
Likewise, the firm estimates the demand for assisted living is expected to rise by 30% to 7 million people by 2005. Currently, 4%, or 588,000, of those over age 75 live in assisted-living facilities, making it a $15 billion industry.
"The only way to create value is by recognizing the patient's need to leave a nursing home," Walker said. "The only way we can respond to that need is by creating a network that gives us access to all these different cash flows. That access gives me the ability to listen to the patients and put them where they want to be."
The expectations of managed-care organizations and other payers have further nudged long-term-care players out of their niches.
"Companies are proactively forming networks to be able to retain managed-care Medicare residents as Medicare increasingly shifts from fee-for-service to managed care," observed Mark Banta, an analyst with Salomon Brothers in New York. "The networks allow managed-care plans to simplify their payments."
Currently, about 10%, or 3.8 million, of the nation's
37 million Medicare beneficiaries are enrolled in Medicare risk plans. That compares with 1.1 million Medicare risk enrollees in 1990 and only 309,000 in 1985. By 2000, as many as 12.6 million will be enrolled in HMOs.
As a result, contracting with long-term-care providers that offer a wide range of services across a broad geographic area has become a priority for many managed-care plans.
"To meet the needs of seniors, you need to deal with institutional skilled-nursing care as well as the extended rehabilitative side of care," said Stephen Russell, director of product administration for Humana, which had 332,900 enrollees in its Medicare risk program as of June 30.
"And because the senior population is far more mobile than before, we need to develop long-term-care networks that are more regional if not national in scope," Russell added.
Alan Greenfield, a senior vice president and chief medical officer for Foundation Health, agreed.
"It's better to work with one vendor from an account management standpoint," he said. "When the patient changes location, there's usually another vendor involved."
Ed Griese, vice president for medical delivery systems for United Healthcare of Illinois, said he has contracts with dozens of long-term-care providers to serve 48,000 Medicare enrollees in the Chicago area.
While he believes the multiple companies have been working well together, "there's the potential for a smoother transition if all the services were controlled by one company," he said. "If someone can improve the quality and lower costs, we'll definitely take a look at that."
Company executives say a diversified strategy helps to attract managed-care contracts and enables them to accept fully capitated contracts in which they receive a set per-enrollee, per-month fee.
"Payers' profits are getting cut back, and they want to share risk with providers," Elkins said. "The key is to be a diversified provider that is dominant in certain areas."
Currently, IHS contracts with about 350 managed-care organizations. Most recently, the company entered an exclusive capitated contract with Foundation Health to serve its 86,000 enrollees in Florida.
On a similar note, New London, Conn.-based Mariner Health Group agreed in September to provide services ranging from physician office visits to inpatient care to home care on a capitated basis to 6,500 Medicare enrollees in Humana's health plan in Orlando, Fla.
Mariner provides post-acute services in more than 357 cities, primarily in the eastern two-thirds of the country. It reported 1995 revenues of $298 million.
As Arthur W. Stratton, M.D., Mariner's founder and CEO, explained, the advantage of capitated contracts to Mariner is pretty simple: "If you do a good job, then you get to keep the money that's left over."
Government incentives also have affected the long-term-care industry.
According to HCFA, there has been a growth in the use of post-acute services since October 1983 when the government instituted a PPS for hospital Medicare reimbursements. The program placed stricter caps on reimbursement and encouraged earlier discharge of patients.
As a result, HCFA found that between 1987 and 1992, the percentage of hospital discharges using skilled-nursing facilities more than tripled to 9.7% from 2.8%. During the same time, the number of discharges using Medicare-reimbursed home-care services increased to 22.9% from 14.7%.
"PPS has been a driving force," Stratton said. "The hospital is an expensive setting. Post-acute providers are expanding to meet the needs of patients as they come out of the hospital."
Further reimbursement changes looming on the horizon also have motivated long-term-care companies to cast wider service nets.
John Runningen, a senior healthcare analyst with Robinson-Humphrey Co. in Atlanta, said companies are bracing for the government to institute a PPS for the reimbursement of skilled-nursing, home-care and other post-acute services.
Under a PPS, providers likely would be held to stricter reimbursement caps on costs for both routine services, such as room and board, and ancillary services, such as lab work and physical therapy. Essentially, companies' profits would reflect the amount of money they are able to save by staying under the caps.
"What is an incremental revenue strategy today will be a cost-containment strategy tomorrow," Stratton said.
Control over the management of all reimbursed services gives companies more confidence that they will be able to succeed under a PPS.
"If the rules of the game change suddenly and companies are under pressure to control both routine and ancillary costs, our company can deliver all the services under the caps because we'll provide them directly," said Alan Cormier, executive vice president and chief operating officer for Frontier Group. "The services we provide ourselves can come in at the best price point."
But while companies have been racing to respond to these demographic and regulatory shifts, no one has crossed the finish line.
Evashwick, author of The Continuum of Long-Term Care: An Integrated Systems Approach, said she has yet to see a national corporation "take a cookie-cutter continuum and send it to all its locations."
She warned that companies must face a number of integration issues before they can pronounce their services a true continuum of care. She said they must focus on joining the marketing, pricing, operations, human resources, information systems and communication strategies of all the organizations they bring into a network.
Analysts and managed-care organizations also are reluctant to deem one company as leading the pack in the quest for a true continuum.
"Many have pieces of a network but don't have an entire network," said Russell of Humana. "They don't have it integrated to move patients smoothly from one setting to another. They have a good start, but linking those pieces is a challenge."
Competition from hospital-based networks is another wild card. The impact of the move of local hospitals and national hospital companies, such as Tenet Healthcare Corp. and Columbia/HCA Healthcare Corp., into subacute care and home care has yet to be fully felt.
"There's an opportunity now for long-term-care companies to go where the hospital companies don't have a presence or established networks," said analyst Banta. "The long-term-care companies may need to integrate more with the regional hospitals. It remains to be seen whether the post-acute network is viable compared with a network anchored by a hospital."
The companies themselves realize they have a few more dots to connect, whether by purchasing additional services, rounding up more doctors or getting more cozy with hospitals.
"We're getting closer to a coordinated network," Elkins said. "The next stage is to tie it all together."