Some contract rehabilitation therapy companies are dying on the vine as many skilled-nursing facilities no longer can afford to hire out for their physical therapy needs.
Excellcare, a Northbrook, Ill.-based contract rehabilitation company, is a case in point. At its height, Excellcare had 350 therapists on its payroll providing rehabilitation services to nursing homes in the Chicago area.
Dwindling demand for therapists in the wake of Medicare payment cuts to skilled-nursing facilities cost a third of the staff their jobs in December 1998 and January of this year.
But even such drastic downsizing couldn't keep pace with the drop in demand, and on May 7 Excellcare closed its doors for good.
"I just didn't see staying in the business and being profitable," said Chief Executive Officer Sharon Burack, who launched the company in 1978.
Medicare cutbacks to skilled-nursing facilities have gutted the contract rehabilitation business, which once turned some of the tidiest profits in the long-term-care industry.
Publicly traded companies routinely saw pretax margins of more than 20% in their contract rehabilitation divisions, analysts said.
Using a middleman benefited nursing homes as well. The contract companies hired and managed hard-to-find therapists, and the nursing homes billed Medicare for what the companies charged them plus overhead, Burack said.
But now skilled-nursing facilities can no longer bill Medicare separately for therapy services, and contract rehabilitation profits have plunged.
Owings Mills, Md.-based Integrated Health Services, for instance, told
investors last month that its contract rehabilitation division was running a 14% margin, less than half its historical level. With many national contract rehab companies scaling back or pulling out of the business altogether, larger nursing homes are cutting out the middleman.
That's the case with Ronald Reinecke, administrator of 508-bed DuPage Convalescent Center, Wheaton, Ill., who made the decision to switch to in-house therapy even before he learned Excellcare was going out of business.
"Bringing therapists in-house could cut costs by half," he said.
Pollyanna Franks, president and CEO of Sunset Haven, an Ontario, Calif.-based senior-care company, also decided to drop her contract therapy provider. "It's really a buyer's market right now," she said, adding that she, too, expects to save 50% by going in-house.
Eskaton, a Sacramento, Calif.-based senior housing and healthcare services provider, has a different solution. Robert Bowersox, executive director of Eskaton's health services group, has replaced hourly contracted rates with capitated, shared-risk therapy contracts for his four skilled-nursing facilities.