Changes in the Medicare payment system rattled the long-term-care industry last year, prompting two major mergers in the for-profit sector and causing financial damage across the board.
Reimbursement reductions for outpatient services have yet to materialize, but in the meantime, healthcare systems are wasting no time consolidating, according to data provided for MODERN HEALTHCARE's 1999 Multi-unit Providers Survey.
Beverly Enterprises topped the list of the 39 nursing home systems responding to the survey, with 562 facilities in 29 states, even as the Fort Smith, Ark.-based chain shed a few of its less-profitable nursing homes.
In the first major merger of 1998, Atlanta-based Paragon Health Network and New London, Conn.-based Mariner Health Group formed Mariner Post-Acute Network, which took the No. 2 spot in the survey, with 428 facilities and 50,471 beds.
The second major merger of 1998 linked Toledo, Ohio-based Health Care Retirement Corp. and Gaithersburg, Md.-based Manor Care to create HCR Manor Care. The new company ranked No. 5, with 297 facilities.
Genesis Health Ventures, Kennett Square, Pa., was the seventh largest long-term-care system. The company reported fewer facilities in 1998 because it reclassified some its homes as subacute units, which are counted separately. Genesis also lost management contracts on about a dozen nursing homes.
For-profits dominated MODERN HEALTHCARE's survey of nursing home systems, accounting for 23% of respondents but 80% of facilities. The lone not-for-profit to make the list of top 30 nursing home companies, Sioux Falls, S.D.-based Evangelical Lutheran Good Samaritan Society, had 223 facilities, one less than last year.
The 167 responding systems that operated at least one nursing home ran a total of 4,638 facilities, a 6% increase over 1997. But the survey's not-for-profit respondents added facilities faster last year than did the for-profit sector, with a 12% increase, compared with a 5% increase in the for-profit sector.
That growth was related to several not-for-profit mergers, including Minneapolis-based Fairview Health Services' late 1997 affiliation between its Ebenezer Social Ministries and a St. Paul, Minn.-based eldercare organization called the Board of Social Ministry. The affiliation added 19 nursing homes to Fairview's roster.
Robert Greenwood, spokesman for the American Association of Homes and Services for the Aging, says that historically, not-for-profit nursing home chains have tended to be smaller and more wary of mergers, which might blur their missions. But Medicare's prospective payment system makes "demands on nursing homes to become more technical and to become better information managers. Sometimes that expertise is easier to come by in a larger system."
Some of the apparent growth in not-for-profit facilities also stemmed from gaps in survey responses.
Despite an overall increase in bed numbers, the 13 for-profit nursing home system respondents that provided complete financial data reported an average net loss of $64 million in 1998, down from an average net gain of $33.1 million in 1997. Companies have blamed those losses on Medicare's shift to a prospective payment system for skilled-nursing facilities.
The three not-for-profit nursing home systems reporting financial data saw their average net income drop by half in 1998.
While most survey respondents added nursing home beds last year, many systems dropped home health sites. Medicare phased in home health payment cuts starting in October 1997, and several large integrated systems last year exited the business.
The number of home health agency branches dropped by 26%, to 1,067, in 1998 mostly because of Integrated Health Services' exit from that business last year. The Owings Mills, Md.-based company reported 437 branches in 1997, most of which it sold to Memphis-based Medshares, a privately held home nursing company.
Overall, 168 systems responding to MODERN HEALTHCARE's survey said they operated home health agencies in 1998, compared with 167 in 1997. The stability in that number suggests that the wave of home health agency closures documented last year by national trade organizations may have bypassed systems and may have been concentrated among freestanding agencies.
Continuing-care retirement communities and assisted-living facilities continued to gain popularity last year among survey respondents. The top 20 providers of such services all increased the numbers of communities they operated. Eighty-six systems reported owning or managing continuing-care retirement communities.
In the outpatient business, HealthSouth Corp. was the undisputed leader. The Birmingham, Ala.-based company had 1,851 facilities in 1998, more than triple the leading contender (Department of Veterans Affairs, at 551) and 22% of the total facilities reported by the 177 systems responding in this category.
Last year HealthSouth acquired 74 ambulatory surgery centers for $1 billion, and now is the predominant ambulatory surgery provider in the country. Nashville-based Columbia/HCA Healthcare Corp., which sold 34 of its ambulatory surgery centers to HealthSouth as part of that acquisition, reported 107 outpatient facilities this year, compared with 145 last year.
Changes in the Medicare payment system have not spread to the outpatient surgery business. But caps on therapy have cut the demand for rehabilitation and created a glut of geriatric therapists, making the outpatient therapy business one to watch this year, analysts say.
Earlier this year HealthSouth agreed to buy about 170 rehabilitation clinics from Mariner Post-Acute Network, which will exit the rehabilitation business.
Survey respondents reported fastest growth in clinics dealing in chest pain, wellness, physical therapy and surgery. Most of that growth, however, was confined to relatively few companies.
The number of chest pain clinics grew 26%, to 102, mostly as a result of the four-way Catholic merger that created Tulsa, Okla.-based Marian Health System in 1998. The 23% surge in the number of wellness clinics, to 338, was likewise largely the result of mergers.
Surgery centers operated by reporting systems numbered 670, up 14% from 1997. Most of that gain stemmed from HealthSouth acquisitions. Acquisitions by Beverly Enterprises and HealthSouth also fueled the growth in the number of physical therapy and sports medicine centers by 19% to 2,300.
In the inpatient rehabilitation business, HealthSouth was again the biggest player, owning or managing 129 hospitals, or 26%, of the 200 rehabilitation hospitals reported.
No. 2 Sun Healthcare Group, Albuquerque, ended 1998 with nine hospitals. This year Sun plans to sell those hospitals, along with its 31 assisted-living facilities, to raise cash and pay off debt. But given the current field of inpatient rehab operators, Sun may not find a ready buyer.
Last year, the survey shows, HealthSouth dropped 16 of its 145 hospitals, mostly management contracts. Forty-six survey respondents said they operated rehabilitation hospitals. HealthSouth President and Chief Executive Officer Richard Scrushy has said he plans to sell or close more nonperforming or nonstrategically located facilities, and analysts say it is unlikely he will acquire new ones.
No other survey respondent operated more than three rehabilitation hospitals in 1998.