With its seventh consecutive year of double-digit growth, the outpatient services sector continued to see the most post-acute action in 1997, according to MODERN HEALTHCARE's 1998 Multi-unit Providers Survey. Meanwhile, skilled-nursing growth remained steady, although some smaller nursing home chains are exiting the business to avoid new Medicare reimbursement rules.
Outpatient whirlwind. The number of freestanding outpatient-care facilities operated by responding healthcare systems rose 26% in 1997 to 7,634 facilities from 6,052 in 1996.
HealthSouth Corp. remained the leader among systems operating freestanding outpatient facilities.
The Birmingham, Ala.-based outpatient and rehabilitation services provider increased its outpatient facilities 57% to 1,569 from 1,000 in 1996. The addition of those facilities helped HealthSouth's annual revenues break the $3 billion mark for the first time.
Among the top 25 systems operating outpatient facilities, Detroit Medical Center, which ranked No. 8, saw the largest increase, operating 138, or 138% more than the 58 it operated in 1996.
Several major not-for-profit systems that didn't make the top 25 also focused seriously on outpatient facilities in 1997. Baylor Health Care System in Dallas increased its outpatient facilities 567% to 60 from 9 in 1996. And Orlando (Fla.) Regional Healthcare System jumped 386% to 68 from 14 in 1996.
The U.S. Department of Veterans Affairs had double-digit growth for the first time in recent years, posting a 10% increase to 439 outpatient-care facilities from 398
All the major categories of services at freestanding outpatient-care facilities grew in number last year. The most common outpatient facilities in 1997 were those that provide ambulatory care (responding systems owned 2,591 facilities), physical therapy and sports medicine (2,222 facilities), and rehabilitation (1,629), the survey found.
Surgery centers gain notice. Healthcare systems are focusing more attention on outpatient care to meet the demands for low-cost healthcare services from insurance companies and other third-party payers.
For example, the number of systems operating outpatient surgery centers grew 10% to 662 from 600 in 1996. Surgery center business has grown steadily in recent years, along with Medicare reimbursements for surgical procedures. Medicare now covers 2,200 procedures compared with 1,200 in 1991. More than 60% of all surgical procedures are performed on an outpatient basis.
Nationwide, the ambulatory surgery center industry produces about $5 billion in annual revenues.
With the federal government's emphasis on lower costs, HCFA is considering a further expansion of the outpatient surgical procedures Medicare covers. Most HMOs and Blue Cross and Blue Shield plans already cover more procedures than Medicare does. HCFA says it will consider expanding the list later this year with possible implementation next year.
Richard Scrushy, HealthSouth's chairman and chief executive officer, says the likelihood HCFA will expand the procedure list will create more interest in the industry.
"It will be wide open in the next few years," Scrushy says. "It's going to be far more profitable."
That's one of the reasons HealthSouth has agreed in the past two months to spend more than $1 billion on surgery center acquisitions.
Earlier this month, the company announced plans to acquire Chicago-based National Surgery Centers for $590 million in stock (May 11, p. 14). NSC operates 40 ambulatory surgery centers in 14 states.
That deal came just two weeks after HealthSouth agreed to buy 34 surgery centers from Columbia/HCA Healthcare Corp., Nashville, for $550 million in cash (April 20, p. 24).
After both deals close-sometime in the third quarter-HealthSouth will operate 252 surgery centers in 36 states and will have annual revenues of about $4 billion. Of its total revenues, about a quarter, or $1 billion, will be from surgery centers.
As far as surgery centers go, HealthSouth has met its acquisition targets well into the next millennium, Scrushy says. But without the NSC deal, he says, it would have taken the company another three years to get to this point in building its surgery center business.
"It does buy us a lot of work and a lot of time," Scrushy says. "We've stepped forward three years."
HealthSouth also operates 1,250 outpatient rehabilitation centers, 134 inpatient rehabilitation hospitals and 115 diagnostic imaging locations in 50 states.
In perhaps its biggest move of 1997, the company acquired Albuquerque-based Horizon/CMS Healthcare Corp., which included 275 outpatient rehabilitation centers.
Rehabilitation rise. HealthSouth also has cemented its position as the leader in the inpatient rehabilitation business. It increased the number of rehabilitation hospitals it owns 54% to 145 from 94 in 1996. Much of that growth resulted from the Horizon/CMS deal, which gave HealthSouth an additional 31 inpatient rehabilitation facilities.
HealthSouth's closest competitor in inpatient rehabilitation was Sun Healthcare Group of Albuquerque, which had eight hospitals at the end of 1997.
The survey found responding systems operated 37% more freestanding rehabilitation hospitals in 1997; their number of facilities increased to 205 from 150 in 1996.
Buoyed by HealthSouth, for-profit companies led the growth in inpatient rehabilitation, increasing their number of facilities 43% to 163 from 114 in 1996.
The public, secular not-for-profit, Roman Catholic and other religious systems increased their rehabilitation hospitals by 17% to 42 from 36 in 1996.
Skilled nursing. The number of skilled-nursing facilities operated by responding systems increased 17% to 4,602 from 3,930 in 1996. The 37 for-profit responding companies that own or manage skilled-nursing facilities led the pack in both bed and facility growth.
Analysts say smaller nursing home chains might be preparing to exit the business rather than deal with the new skilled-nursing PPS, which will be phased in beginning July 1. Under the PPS, which was called for by the Balanced Budget Act of 1997, skilled-nursing providers will be reimbursed for Medicare on a fixed-rate rather than cost-based basis.
"These are huge changes," says Jeffrey Villwock, an analyst with Robinson-Humphrey Co. in Atlanta. "If you are a mom-and-pop business, you may not want to deal with the new changes. It's going to take real sophistication to deal with Medicare, and most of this industry isn't real sophisticated."
For-profit companies saw 20.2% growth, ending the year with 3,769 skilled-nursing facilities, compared with 3,163 in 1996. For-profits increased their bed numbers 18% to 449,320 from 380,013 in 1996.
Beverly Enterprises, Fort Smith, Ark., continues to control the most skilled-nursing beds, ending 1997 with 63,552. By far, Beverly remains the largest skilled-nursing provider even though its bed count decreased 11% from 71,204 in 1996.
The company continues to divest its skilled-nursing business to focus on its more profitable ventures, such as assisted living. It ended the year with 567 skilled-nursing centers, a 10% decrease from 630 in 1996.
In the past three years, Beverly has divested more than 130 skilled-nursing centers.
Other skilled-nursing providers also have been reducing their number of beds. The nation's largest not-for-profit long-term-care company decreased its bed count despite adding two facilities in 1997. With 224 skilled-nursing centers, Sioux Falls, S.D.-based Evangelical Lutheran Good Samaritan Society reduced its bed count 0.4% to 17,694 in 1997 from 17,763 in 1996.
Assisted-living explosion. The boom in the assisted-living industry helped boost the number of continuing-care retirement communities by 39%. Fifteen assisted-living companies have made initial public offerings in the past five years. The total number of CCRCs rose 38% to 662 from 478 in 1996.
The growth rate of assisted-living apartments was nearly triple that of independent-living apartments in those CCRCs. The number of assisted-living apartments rose 11% to 19,201 in 1997 from 17,317 in 1996, while the number of independent-living apartments grew 4% to 50,535 in 1997 from 48,529.
Boosters cite promising demographics as a key contributor to future development. Companies are banking on the assisted-living industry to grow along with the nation's elderly population. The number of people age 65 and older is expected to be about 80 million in 2010 compared with 34 million today, according to U.S. Census Bureau statistics.
The assisted-living sector is particularly attractive because nearly all its residents are private payers, while long-term-care facilities receive most of their funding from Medicaid.
Although systems didn't provide financial performance information for assisted- and independent-living operations, the industry has struggled to turn a profit. Overall in 1997, 15 publicly traded companies lost $14.9 million despite a 78% increase in revenues to $908 million, according to WDI Capital Markets, a Hilton Head, S.C.-based research and consulting firm.