One man's hot potato is another man's meal.
That's nowhere more obvious than in the long-term-care industry, where some companies drop businesses like so many hot potatoes and others just as eagerly snap them up.
Last week, Atlanta-based Mariner Post-Acute Network said it would sell about 170 outpatient rehabilitation clinics in 18 states to Birmingham, Ala.-based HealthSouth Corp. Although both companies are publicly traded, terms of the cash transaction were not disclosed.
Analysts say the deal, expected to close by June, is a good one for both sides. "For Mariner, it raises cash and gets rid of a business that they really shouldn't be in," said Jean Swenson, a Boston-based analyst for BT Alex. Brown, who notes that Mariner is largely a nursing-home company.
For HealthSouth, she said, the purchase fills some geographic holes in its clinic network, including Florida, North Carolina, Tennessee and Texas.
The new Medicare prospective payment system for nursing homes, which went into effect Jan. 1, 1998, trimmed Medicare reimbursement for skilled-nursing and therapy services.
Long-term-care chains are trying to stem staggering losses with strategic changes, paring operations to core competencies and selling or closing everything else.
Mariner lost $39 million on revenues of $672.7 million for the first quarter ended Dec. 31, 1998, after a loss of $209.7 million on revenues of $2 billion for the year ended Sept. 30, 1998.
Mariner blames much of its poor showing on losses in Medicare revenues because of the PPS. The sale to HealthSouth is part of the company's hasty exit from the rehabilitation business.
Earlier this month, Mariner's contract therapy division, Prism Rehab Systems, told its 900 unaffiliated nursing home customers that it was shutting down operations by May 31.
Mariner also said it was selling its hospital rehabilitation management contracts to Nashville-based National Rehab Partners in a deal set to close May 31.
For HealthSouth, the purchase means about a 15% expansion of its outpatient rehabilitation network. It also gives HealthSouth a hedge against further reductions in Medicare reimbursement. In 1998, Medicare accounted for about 36% of HealthSouth's overall revenues.
More than 90% of the Mariner clinics' revenues are from non-Medicare sources.
Analyst Swenson said she expects HealthSouth to close some of the Mariner clinics, which last year produced almost $80 million in revenues. HealthSouth owns about 1,190 clinics and 124 rehabilitation hospitals, as well as more than 200 surgical centers.
In the first quarter ended March 31, HealthSouth earned $109.9 million, or 26 cents per share, on revenues of $1 billion, marking a 3% drop from $113.1 million, or 27 cents per share, in the year-ago quarter. That marked a recovery from a loss in the previous quarter.