Two national home healthcare companies filed for bankruptcy protection within days of each other late last month.
Apart from the timing, the cases have little in common. But taken together, they sound a warning against the one-stop-shop business model for home care.
Dallas-based HealthCor Holdings and Memphis-based Medshares were in hock up to their earlobes when they filed petitions in their home-town federal bankruptcy courts July 27 and July 29, respectively. Both sought protection under Chapter 11.
Only Medshares, however, expects to emerge intact from bankruptcy proceedings. HealthCor plans to shut down for good, using its ability to keep its doors open under Chapter 11 to maximize the sale price of its remaining operations.
Despite the home health industry's outcry against recent Medicare payment cuts, neither company blames the interim payment system outright for its unhappy turn of events.
As recently as in April, HealthCor touted itself as an integrated service provider, promising managed-care organizations a full range of home care through a nationwide network. The strategy unraveled amid a cascade of external difficulties. Spokeswoman Nancy Hetherington says a key factor was HealthCor's "inability to service multiple service lines that were geographically dispersed."
When Medicare slashed payments under the interim payment system in October 1997, the company responded by closing its 56 Medicare home nursing offices. In 1998, HealthCor lost $98.3 million, or $9.74 per share, on $115.8 million in revenues. In the fall of that year it decided to narrow its focus to infusion, pharmacy and equipment, and started selling everything else. But it was already too late to switch gears.
In the first quarter ended March 31, HealthCor lost $11.5 million, or $1.14 per share, on $22.8 million in revenues. Four top executives, including the chief executive officer and the chief operating officer, resigned in February. By June, competitor Lincare Holdings, Clearwater, Fla., had bought most of HealthCor's durable medical equipment business.
HealthCor was preparing for bankruptcy when a garnishment from a creditor forced it to file two weeks early, Hetherington says.
J. Mark Chevallier, a lawyer handling the case, says HealthCor has at least $106 million in liabilities and as much as $50 million in accounts receivable. HealthCor will sell its last DME operation for $4.1 million and is negotiating a price for its eight remaining pharmacy and infusion operations.
Operating on a single-business-line model, privately held Medshares is HealthCor's opposite and something of an iconoclast in home healthcare. Chairman and CEO Stephen Winters scorned common wisdom by responding to Medicare cuts with a massive expansion of his home nursing operations.
In October 1998 the company bought 154 locations from Nashville-based Columbia/HCA Healthcare Corp., topping that with a $12.7 million purchase of 251 locations from Integrated Health Services, Owings Mills, Md., in February. Medshares subsequently closed about 140 locations. By July its 336 offices in 29 states were on track to generate $400 million in revenues, Senior Vice President Robert Leech says. "For the most part we've been able to conquer the challenges that have been presented to us by the interim payment system," he says.
Regulatory glitches tripped the switch in July, Leech adds. The company waited seven months for Medicare to approve its ownership of Columbia's assets. It was two more months before Medshares could bill Medicare for tens of millions of dollars in services that had been provided since October. By that time the company had exhausted its $140 million borrowing limit from its current lender, Leech says.
The company is negotiating with a new lender and hopes to file a reorganization plan and be out of court "in a fairly short time," Leech says.
Medshares depends on Medicare for about 75% of its revenues. The company will remain focused on home nursing, Leech says, "simply because demographics going forward in the next 10 to 20 years bear it out."