The same day it merged with Holy Cross Health System, Mercy Health Services sealed a much smaller deal that may stir up a sleepy backwater of not-for-profit healthcare.
Mercy's sale of GNA, its contract therapy subsidiary, to Brooks Health System, a 110-bed rehabilitation hospital in Jacksonville, Fla., with 11 outpatient centers, creates what Brooks is calling the largest not-for-profit rehabilitation company in the nation.
A spokesman for Farmington Hills, Mich.-based Mercy said the May 1 sale was unrelated to and not a condition of its May 1 merger with South Bend, Ind.-based Holy Cross. That merger created Trinity Health, which operates 44 hospitals in seven states.
GNA, a Mercy subsidiary since 1985, provides rehabilitation therapy and consulting services to about 125 hospitals, nursing homes and other clients. The market for such services is growing, according to experts.
"I think outsourcing is a good idea, and a lot of hospitals should look at it," said Cecily Lohmar, a consultant with Arista Associates, Fairfax, Va. "Outsourcing in rehab is a slower process because it's still for the most part profitable and doesn't have the market demands (of some other services)," she said.
But the growth charted by some for-profit companies indicates the potential. At RehabCare Group of St. Louis, a contract therapy and staffing provider, revenue jumped 53% to $105.9 million in the first quarter ended March 31 from $69.2 million in the year-ago quarter. Earnings spiked 65% to $5.6 million.
Providers of contract therapy to nursing homes were hit hard by last year's Medicare payment cuts to the skilled-nursing industry, but demand is recovering, observers said.
Last year, profits fell at GNA as well, but the company remains in the black, according to GNA's founder, Gary Nederveld, who will continue as the unit's president and chief executive officer.
Nederveld would not disclose GNA's profits or revenue.
The environment for contract therapy may turn even more favorable with Medicare's prospective payment system for outpatient services, due to start on July 1, and its planned PPS for rehabilitation hospitals, slated to take effect April 1, 2001. Hospitals may find it simpler to hire an outside expert than to try to adjust on their own.
Brooks Health System, which bought GNA for an undisclosed price, operates 11 outpatient rehabilitation therapy centers in addition to its flagship hospital. The combined company will generate about $80 million in annual revenue, according to Brooks figures.
Trinity retains a 25% interest in GNA, and the former Mercy hospitals and nursing homes will continue to use GNA's therapy services. GNA has also begun sealing contracts with several of the former Holy Cross hospitals, Nederveld said.