When the going gets rough, long-term-care companies get tough.
Faced with lower revenues from Medicare for skilled-nursing patients under a new prospective payment system, Integrated Health Services has kicked off a leaner, meaner strategy it hopes will juice up profits.
In recent months, IHS has laid off staff, cut salaries, jettisoned a money-losing business and explored the possibility of selling a profitable business. Early returns indicate the downsizing is working.
Although Owings Mills, Md.-based IHS reported a net loss of $68 million in 1998, it posted net income of $10.8 million on $719 million in revenues for the fourth quarter ended Dec. 31, 1998.
IHS has engineered its turnaround by cutting expenses faster than revenues are falling.
Late last year, the company saw a sharp decline in revenues from its contract rehabilitation division. IHS provides contract rehabilitation services at 1,200 locations and operates 326 nursing homes and other long-term-care facilities.
In response to the revenues drop-off, the division trimmed 1,000 therapists and lowered salaries for the remaining 5,000. In addition, the company now pays only for "productive time," when therapists are actually seeing patients. The company has also cut its contribution to employees' health benefits and may also downsize the company itself.
In February, the company said it was exploring a sale of RoTech, its home oxygen and infusion unit. The company had just sold its 69 home health agencies with 251 locations in 22 states to Memphis, Tenn.-based Medshares.
IHS had considered selling its lithotripsy and diagnostics units but abandoned the idea when it was unable to get what it considered a fair price, Chairman and Chief Executive Officer Robert Elkins told investors last week.
IHS will try to sell RoTech, which it values at $1.5 billion, in the next six months, Elkins said. In the fourth quarter 1998, RoTech earned $41.3 million before interest, taxes and other adjustments on $146.6 million in revenues.