Disclaimer:- The material is selective and not all inclusive.
The extracts do not necessarily reflect the perspective of the
original. Corporate denials and explanations have not been included.
No claim is made that all of the matters referred to are true. The
intention is to give the flavour of the material and an idea of the
extent of the allegations. Can there be so much smoke without a large
fire? This is a matter of public welfare and the interests of the
pubic must be placed before those of the corporations.
CONTENTS THIS PAGE
IHS Goals:- The story of Integrated Health Services (IHS) is not dissimilar to that of Sun Healthcare and Vencor - or for that matter Columbia/HCA and Tenet/NME. Its prime focus was corporate growth and it identified very strongly with the vision of integrated care. It sought to provide a full range of services in a vast empire so that it could provide for and capitalise on all of the medical opportunities offered by patients in its grasp.
As a general rule corporations have not been too concerned about how they have capitalised on these opportunities. Patients have been misused and grossly over treated to serve the corporate bottom line. This is most apparent in aged care where non essential remunerative care was exploited to the point of fraud and beyond, but non remunerative but life preserving care was neglected. IHS is no exception.
Like Sun and Vencor IHS targeted profitable subacute care or step down care in its nursing homes. This was paid per item of service by Medicare. With IHS intense focus on profit less remunerative Medicaid funded care for the frail elderly suffered,
Services were grossly distorted. These policies were enormously successful and IHS became an icon of entrepreneurialism and was admired in the marketplace. No one looked at its practices. When the government eventually stepped in to stop the rorting its empire collapsed.
Integrated Care:- This concept is expressed in a number of marketing and organisational phrases. We hear of One Stop medicine - MacMedicine - vertical integration and horizontal integration. These ideas enjoyed unchallenged legitimacy during the 1990's and became buzzwords in Australia. Mayne Nickless marketed its "One Stop Medicine" likening it to a travel agent. Dr Wooldridge, the Australian federal minister for health was hooked and made a senior Mayne Nickless executive chairman of the powerful and influential government regulator - the Health Insurance Commission (HIC).
Many of the ideas behind integrated care are sound and in the right context it has much to offer. When introduced within a competitive corporate marketplace it simply becomes a means of generating profit by shifting patients around like pawns. As we shall see it is a recipe for disaster. Under a fee for service system it generates over servicing and fraud. In a capitation system it pushes up costs and is a liability. In a market system driven by profit rather than care the treatment given follows the funding and not the needs of the patients. IHS collapse is another nail in the coffin for corporate integration.
Size:- Large empires were seen to generate economies of size and also provide the services needed by an integrated system. In the real world they succumbed to the pressures generated by their own policies. Smaller operators who concentrated on providing care rather than building empires were more durable inn the market and also provided the services citizens required more successfully. IHS illustrates this well.
The references and extracts on this page describe the exponential growth of IHS as it blindly pursued the "One Stop" dream of the unusual Dr Elkins, before collapsing into bankruptcy. The house of cards, built in the heady but unreal world of market medicine fell to pieces when it came into contact with the world the rest of us live in.
Other pages deal with the real world consequences of this one eyed pursuit of success in the market place , fraud and neglect of vulnerable elderly citizens - the grandfathers and grandmothers of the USA.
I do not have pre-1997 articles. I therefore start with extracts from some recent articles published after the bubble had burst. They review what happened and describe IHS in its heyday.
Health chain turns pale; IHS has suffered
82% stock plunge, cut 1,000 jobs; Medical services
THE BALTIMORE SUN February 21, 1999
M. William Salganik
The Owings Mills nursing home chain has grown spectacularly since it went public in 1991.Through the purchase of nursing homes and related businesses, IHS' revenue increased from less than $150 million in 1991 to more than $3 billion in 1998.
----------------------
Until recently, IHS had been buying up a range of health businesses with the aim of becoming a full-service provider for people leaving the hospital. But now, it's not adding business lines, it's shedding them.
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IHS was founded in 1986 by Dr. Robert N. Elkins, a psychiatrist who anticipated that as managed care grew, so would the demand for "subacute" services -- care that is less intense than that of a hospital but more intense than that of a traditional nursing home.He bought nursing homes and converted many of the rooms to subacute care.
(Although the company is based here, none of its nursing homes is in Maryland. Elkins once said he hadn't been able to acquire any in this market at a price he wanted to pay.)
At times, the company used the slogan: "Hospital care without hospital costs."
That concept caught the attention of Medicare, the federal government's insurance program for the elderly, which was seeking ways to lower its spiraling payments for post-hospital care.
Spending soars
Medicare spending for skilled nursing facilities zoomed from $2.8 billion in 1989, or 4.7 percent of all Medicare spending, to $10.6 billion in 1996, 9 percent of all Medicare spending.
As IHS grew and developed a business dependent on federal reimbursement, Elkins became one of the country's largest political contributors.
In the 1996 election cycle, Elkins and IHS gave $572,500 to the Clinton-Gore campaign and the Democratic Party, winning him invitations to three White House coffees for donors.
--------------------------
The idea of "hospital care without hospital costs" also had an obvious appeal for health mantainence organizations (HMOs) and other managed-care insurers who saw it as a way to control costs for a variety of services.IHS developed a new HMO strategy based on that view. The company decided to offer one-stop shopping to HMOs looking to control costs in post-hospital care by contracting with operators who could offer a full range of services at a fixed price per patient, a system of payment known as capitation.
Continuum of care'
Elkins, in the 1993 IHS annual report, said the company was looking to provide "a full continuum of care" in each market. That would include, he wrote, "subacute care, outpatient care, home care, rehabilitation care and pharmacy services."
By moving a patient from subacute skilled nursing facilities to outpatient centers to home care, IHS reasoned, it could maximize its margins on the flat payments.
To build such a full-service system, it stepped up the size and variety of its acquisitions.
In 1996, it bought First American Health Care, a large ($400 million annual revenue) but bankrupt home health care operator, paying $154 million at closing, with an additional payment due later based on earnings.
IHS bought RoTech in 1997 for $858 million in stock and assumed debt.
And the next month, IHS paid $1.15 billion in cash for a large chunk of Horizon/CMS Healthcare from Healthsouth Corp.
The " chunk" was 139 nursing homes, 12 specialty hospitals, 35 institutional pharmacies and more than 1,000 rehabilitation therapy contracts.
"Although this transaction will further enhance and broaden Integrated's capabilities, the all-cash transaction significantly increased an already high debt load and strained Integrated's credit profile," Standard & Poor's said in January 1998.
Though its credit was stretched -- its debt topped $3 billion -- IHS had assembled the one-stop-shopping network it thought would appeal to HMOs. The HMOs, however, never showed up with the big, flat-rate contracts.
"Integrated got a couple of small capitated contracts, then managed care got into trouble," said Stephen Monroe, a partner in Irving Levin Associates, a Connecticut publisher of health industry trade journals.
With profits melting, HMOs spurned capitated contracts for subacute services and concentrated on dealings with doctors, hospitals and drug companies. "Getting into capitated contracts for post-acute care was not high on their priorities, " Monroe said.
Meanwhile, he said, "the federal government started to get concerned when nursing home spending ballooned."
The Balanced Budget Act of 1997 dictated a new Medicare payment system for skilled nursing facilities that was projected to save $9.2 billion over five years.
"Clearly, the new Medicare reimbursement system is causing more problems for Integrated than anyone anticipated, and when I say anyone,' I mean investors, people like me, and the company itself," said Mains, the Advest analyst.
THE SHAME OF OUR NURSING HOMES; nursing
homes allegedly treat patients poorly
The Nation March 29, 1999
Eric Bates,
Integrated Health Services (Owings Mills, Maryland). The chain moved into the front ranks of the inudstry when it acquired rival Horizon/CMS Healthcare for $ 1.2 billion. It now boasts 42,600 beds and revenues of $ 3 billion.
Integrated Chief Prospered Troubled Times
in Nursing Homes
Albuquerque Journal August 1, 1999, Sunday
The head of the biggest operator of nursing homes in New Mexico earned about $8 million in salary and bonuses in three years, according to a company document.Robert Elkins, chairman and chief executive officer of Integrated Health Services of Owings Mills, Md., earned $2.3 million in salary for years 1996 through 1998, says the document filed with the Securities and Exchange Commission.
He earned nearly $5.8 million in bonuses for years 1996 and 1997, the document says.
Integrated also is making irrevocable contributions to a retirement trust for Elkins that is to hold $23.9 million by 2001, according to the document filed with the SEC.
Integrated also leases at a cost of nearly $1.1 million a year an aircraft from a company wholly owned by Elkins, the document says. Elkins has exclusive first use of the airplane but must reimburse Integrated for its out-of-pocket costs if he uses the aircraft for personal reasons.
----------------------------------------
Integrated operates several facilities once owned by Horizon/CMS Healthcare of Albuquerque, which was sold in 1997.The company is relatively young 13 years old and has grown into a $3 billion-a-year business primarily by gobbling up other companies.
It has amassed a mountain of long-term debt $3.4 billion and its stock price has plummeted in part because of Medicare cuts for nursing-home care.
Golden years fade for nursing home chains;
An industry booming only a few years ago struggles to survive
THE BALTIMORE SUN March 5, 2000, Sunday ,FINAL
Long-term care has a cloudy short-term future.With Integrated Health Service's filing for bankruptcy protection last month, four of the nation's seven largest nursing-home chains -- with 177,000 beds -- are in bankruptcy.
------------------------------
The current crunch in the industry has its roots in the mid-1980s, when companies like Genesis and Integrated Health were getting started. They took nursing homes in a new direction -- a direction that made the term "long-term care" somewhat misleading.Dr. Robert Elkins, who founded IHS in 1986, anticipated a demand for "subacute" services -- care that is less intense (and less expensive) than what hospitals provide.
Integrated Health Services and other nursing-home chains began shifting their business away from traditional, long-term care for frail elderly clients, and began providing shorter-term care for patients leaving the hospital -- at higher rates than those usually charged by nursing homes.
At Genesis, the shift to shorter-term patients meant the average length of stay dropped from about 450 days -- when the company began in the mid-80s -- to about 150 days now, according to Walker, who says "45 percent of the people go home in less than 60 days."
------------------------
Meanwhile, the number of Medicare patients treated in nursing homes was more than doubling as well -- from 638,000 to 1.6 million. Medicare spending in skilled nursing facilities -- known in the trade as "sniffs," from the initials SNF -- grew from $578 million in 1986 to $13.6 billion in 1998.The nursing home chains followed the money, becoming more dependent on Medicare payments for subacute patients -- now 25 to 40 percent of revenue for large chains -- in addition to the traditional Medicaid payments for indigent elderly residents.
Growing rapidly, the chains bought more and more nursing homes and more and more related businesses -- therapy companies, home-nursing operators, institutional pharmacies -- to serve the subacute patients.
Integrated Health Services was one of the most aggressively acquisitive. The Sparks company's revenue increased from less than $150 million in 1991 to more than $3 billion in 1998, making it one of Maryland's largest publicly-owned companies. Similarly, Genesis grew from $219.7 million in fiscal 1993 to $1.87 billion in fiscal 1999.
But the growth in spending on subacute care caught the attention of Congress, which cut payments as part of the Balanced Budget Act of 1997.
The government cut its payments and, instead of simply reimbursing nursing homes for the cost of subacute care -- whatever the cost was -- the government switched to a per-day rate.
--------------------------------
"Egos get involved. You grow by acquisition, and you've got to get the deal done. There were some bad business decisions."Arvid Muller, a senior research analyst for the Service Employees International Union, which represents thousands of nursing-home workers, said that while Medicare cuts were a factor in the bankruptcies, "some of the companies went into a huge buying spree. But they overpaid for the homes, and now they can't get enough revenue to pay their debts."
Most nursing homes, he said, make money on an operating basis, but can't necessarily cover debt service.
Top 15 nursing home chains ::: By the
Numbers
Modern Healthcare Supplement July 31, 2000
Top 15 nursing home chains. Ranked by number of beds as of January 1999Rank ------Company ----------- Beds
1 Beverly Enterprises Fort Smith, Ark. 62,293
2 Mariner Post -Acute Network Atlanta 49,656
3 HCR Manor Care Toledo, Ohio 47,138
4 Sun Healthcare Group Albuquerque 44,941
5 Integrated Health Services Owings Mills, Md. 44,302
6 Vencor Louisville, Ky. 38,362
7 Genesis Health Venturers Kennett Square, Pa. 35,016
My data base picks up the story in December 1996 when IHS is blinded by its success. It is buying frantically and simply ignores the looming funding crisis. The articles are roughly chronological but I have tried to group related material.
COMMENT:- Patients over 65, unable to afford private care in the USA are covered by Medicare which is under financial pressure. Government had unlimited faith in market forces and managed care. This led the government to encourage Medicare recipients to join HMO's which were then paid by Medicare. This moved them from a cost generating item of service system to a cost reducing HMO system. When compared with other HMO patients these poorer patients were not as healthy. They required more care and generated higher costs so were not profitable. The HMO's soon dumped them.
IHS built its empire on Medicare. In the next clipping IHS gains access to 161,000 elderly citizens by making a business agreement with Aetna. Together their nurses and case managers will control the care received by these patients, presumably in the corporate interest. This gives the patients little choice. Aetna's conduct suggests that the financial relationships with doctors in providing for these patients is likely to be such as to induce the doctors to serve corporate interests rather than their patients.
FOR THE RECORD
Modern Healthcare December 23, 1996 Page 24 - News
Integrated Health Services, an Owings Mills, Md.-based post-acute provider, said it has signed an agreement with Aetna U.S. Healthcare to offer services to more than 161,000 skilled-nursing-facility residents in Delaware, Massachusetts and Pennsylvania. Under the five-year agreement, Aetna's Medicare HMO enrollees in those states will have their patient-care and preventive services coordinated by IHS geriatric nurses and by Aetna case managers. IHS provides post-acute services, including subacute care, assisted living, skilled nursing and home care, at more than 1,000 sites in 40 states.
COMMENT:- Like Sun and Vencor. IHS focussed on rapid corporate growth. They targeted Medicare by providing subacute care and developed an unsustainable income stream. They used it to raise loans to fund their rapid expansion. This large debt rendered them vulnerable to the slightest economic downturn.
IHS to buy CCA for $94 million
Modern Healthcare August 1,
1997
Post-acute provider Integrated Health Services will buy Community Care of America in a cash deal valued at about $94 million. The deal is expected to be completed within 90 days. CCA, based in Naples, Fla., operates 54 long-term-care facilities, a physician practice and an outpatient rehabilitation center. Owings Mills, Md.-based IHS said the addition will broaden its post-acute network in rural areas. IHS also said it will acquire home-care operator Arcadia Services of Southfield, Mich., for undisclosed terms.
FOR THE
RECORD
: IHS to buy Coram unit
Modewrn Healthcare Aug. 25, 1997 Page 14 Briefs
Integrated Health Services last week signed an agreement to buy the lithotripsy unit of Coram Healthcare for $130 million in cash. Four months ago, Owings Mills, Md.-based IHS terminated a planned merger with Denver-based Coram and agreed to pay the company $21 million. The lithotripsy business includes 33 mobile machines operating in 18 states. The acquisition is expected to close within 60 days.
COMMENT:- The following article reveals IHS policy of borrow and buy, as well as its plans to provide a complete One Stop service - all the way to a patients home. Columbia was in the midst of a massive fraud investigation and was busy selling off those businesses where its movement of patients for profit had aroused anger and investigation.
IHS MAY BE PREPARING FOR HOME-CARE BUY
Modern Healthcare Sep. 22, 1997 Page 14 News
Charlotte Snow
Integrated Health Services said it has secured a $1.75 billion line of credit, leading to speculation that it may be readying to buy the home-care operations of Columbia/HCA Healthcare Corp. or Apria Healthcare Group.The deal includes a $1 billion revolving credit line and a $750 million term loan, with Citibank and Toronto Dominion Bank heading a group that includes 51 other lenders. The new credit facility replaces a $700 million revolving credit facility with Citibank and 22 other lenders.
Columbia Homecare Group and Apria, two of the nation's largest home-care companies, both went on the block this summer. IHS operates more than 1,000 post-acute locations in 45 states and is also one of the top five largest home-care companies in the U.S.
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IHS is one of the few public companies with an expressed interest in acquiring home-care companies," she said. "Having the credit facility in place makes it a qualified buyer and puts it in the running."IHS' new line of credit follows a recent statement by New York-based Standard & Poor's Corp. that the outlook for the company's credit is "negative" and "there is the potential that a large debt-financed acquisition could lead to a rating downgrade" (See story, p. 68).
-----------------------
Like Columbia, Apria's objective is to sell the company as a whole, not in pieces, Aronson said.Aronson said Apria anticipates announcing an agreement in late October or early November. She would not comment on whether IHS is one of the interested parties.
Marc Levin, IHS' executive vice president, said the $750 million loan will be used to finance pending acquisitions. Levin said the remaining $1 billion is "not earmarked for any particular acquisition."
UPDATE
Modern healthcare Nov. 10, 1997 Page 70 Briefs
Owings Mills, Md.-based Integrated Health Services has completed its $858 million acquisition of Orlando, Fla.-based RoTech Medical Corp. The deal included $508 million in stock and $350 million in assumed debt. IHS said its purchase of RoTech, one of the nation's largest providers of home respiratory services, will strengthen its balance sheet, increase its margins and expand its services. IHS, which announced the acquisition in July, said it plans to expand RoTech's acquisition activity, its operations in urban markets and its operations to managed-care and other insurers (July 14, p. 14). The combined company expects pro forma revenues of $2.6 billion with nearly 2,000 post-acute locations in 46 states.
Report: Columbia/HCA May Spin Off
The New York Times November 11, 1997 By The Associated
Press
Columbia/HCA Healthcare Corp. may spin off about a third of its 340 hospitals into a separate company, The Wall Street Journal reported today.
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HealthSouth Corp., a Birmingham, Ala.-based company, is interested in Columbia's rehabilitation and surgery centers, and Integrated Health Services Inc. of Owings Mills, Md., is said to be a likely buyer of the home-health division.
CONSTRUCTIVE SURGERY: COLUMBIA WEIGHS
SPINNING OFF SURGERY UNIT FOR VALUE
Modern Healthcare April 6, 1998 Page 34 News
Columbia has been telling analysts it plans to complete the sale of its home health business and deal with related regulatory hurdles for Value Health, which it acquired in August 1997. Integrated Health Services of Owings Mills, Md., has acknowledged it's in due diligence to acquire Columbia's home health business, but Columbia said late last month it plans to sell the business to more than one buyer.
COMMENT:- The next article lists the five largest deals in 1997 and the five largest in several areas. I have extracted only IHS deals. These purchases were made during the period when government was complaining about rising Medicare costs, over servicing and fraud. They were quite openly changing the funding system on which IHS' repayment of loans depended in order to deal with these problems. While supposedly preparing to cope with these changes IHS went out and borrowed vast sums of money and spent it on companies whose profit stream would depend on the same Medicare funding.
Note that there was some sort of a deal with HealthSouth to purchase Horizon. I do not have any details but it is clear that IHS acquired US $ 1,300 million of Horizon's nursing homes. As I read later reports HealthSouth also acted as a guarantor for some of the loans. I include a snippet from a later article about this.
Horizon's chairman Elliott trained with Andrew Turner in Hillhaven in the 1980's under Tenet/NME's chairman Richard Eamer. Elliott and Turner left Hillhaven to form Horizon. Turner left Horizon soon after and formed Sun Healthcare. Both were growth companies and expanded rapidly trying not to compete directly with one another. The lineage back to Tenet/NME's profit before care culture can be traced through Hillhaven to Vencor which purchased it, to Sun Healthcare, and through Horizon to IHS.
Size does matter; healthcare industry
mergers and acquisitions; Cover Story Blecher, Michele Bitoun
Hospitals & Health Networks June 20, 1998
FIVE LARGEST DEALS OF 1997Integrated Health Services acquisitions were among the five largest in 1997 in the following areas.
HOME HEALTH (millions)
Integrated Health Services acquired RoTech Medical $ 858
Integrated Health Services acquired Ambulatory Pharmaceutical $ 34REHABILITATION
Integrated Health Services acquired Rehab Dynamics $ 22
LABS
Integrated Health Services acquired T2 $ 127
LONG-TERM CARE
HealthSouth acquired Horizon/CMS $ 1,600
Integrated Health Services acquired Horizon/CMS Nursing Homes for HealthSouth $ 1,300
SPURNING HOME HEALTH HEALTHSOUTH CEO:
WANING INTEREST CAUSING NOV. 1 EXIT
Modern Healthcare Nov. 2, 1998 Page 6 News
"That still nets us out at about $300 million," Scrushy said, referring to the $400 million gain he said the company made on the sale of most of Horizon's long-term-care assets to Owings Mills, Md.-based Integrated Health Services soon after the acquisition (of Horizon).
National Hospice Provider Changes Name
PR Newswire November 10, 1998
Hospice of Integrated Health Services of Dallas and Fort Worth is the new flagship name for the former Horizon Hospice Care, Inc. and Samaritan Care Hospice. Both Hospice providers were acquired by Integrated Health Services (IHS). Hospice of Integrated Health Services has four locations in Texas (Dallas, Arlington, Houston, and San Antonio) and other locations in nine states.
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IHS is recognized for its leadership in providing care-effective, and cost- effective solutions to the health care problems facing America today.
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Hospice of Integrated Health Services, formerly Horizon Hospice Care, Inc. and Samaritan Care Hospice, was founded in 1995 and 1996 respectively.
THE WRITING ON
THE WALL
(to
contents)
1998 started off optimistically but under the new funding system profits started to fall rapidly. Analysts and then company executives realised that there were problems and started doing something about it. They were still in denial and failed to assess the situation realistically. When the penny finally dropped there was a wild attempt to sell off at bargain basement prices assets, which were originally purchased for many millions. By this stage there were few buyers. This next set of references describes these events,
COMMENT:- The following extracts from a market journal show that the market was aware of the impending problems but its framework of understanding did not allow it to respond in a sensible and logical way. Consolidation and size (i.e. takeovers) are seen as desirable and the developments are reported on positively. Growth is the operative word and growth is good.
The likely effects of the new Medicare funding are described and this is followed by a description of the massive loans which are being raised to fuel the takeovers. No mention is made of the problems in servicing these loans under the new system. The article finally promotes continued "consolidation" and integration by acquisitions. It singles out IHS as a leader in this strategy. Investors who read this are likely to go out and buy IHS shares.
To anyone thinking outside the market framework the illogicality of this article is glaringly apparent. It reveals that those trapped in marketplace frames of understanding are unable to step out of the framework to see what is obvious to the rest of us. I wonder if the financial advice most of us receive from our financial advisers is any more soundly based!
Banking: financing trends in an
acquisitive health care market - focus on long-term care.
Journal of Health Care Finance June 22, 1998
Gordon, Lawrence J.; Bressler, Andrew
IntroductionThe merger and acquisition (M&A) frenzy sweeping the health care industry has been particularly intense in the long-term care sector. As a result, the financial community - both lenders and investors - now views this sector differently and the approach to long-term care financing has changed. Based on our experience, we focus on six factors driving consolidation in the sector and - through the use of four transactions as a platform - discuss the key credit issues and risks faced by long-term care companies today.
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Dramatic changeConsolidation and integration have driven the dramatic change in the long-term care industry in the 1990s. Table 1 shows the top 10 chains at year end 1997 (by 1996 bed count). Rehabilitation hospitals and facilities, skilled nursing homes, assisted living facilities, intermediate care facilities, home health services, and other specialty care services have all grown significantly in size and number in the last 10 years.
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Effect of PPS (PPS is the new Medicare funding system)Larger, low-cost nursing home chains should prosper under PPS. Under PPS, nursing homes will be reimbursed on a flat fee per day for Medicare patients. High cost nursing homes and facilities that provided excess ancillary services to Medicare patients will likely record losses. Conversely, larger, more efficient nursing home chains that effectively manage costs below the average Medicare PPS per diem rate could see a meaningful improvement in profitability. Similar to the introduction of PPS for acute care hospitals, a significant number of smaller, high cost nursing homes probably will not sufficiently reduce costs and thus may be forced to merge or sell their facilities.
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Leveraged lendingThe increased M&A activity in the health care sector during 1997 profoundly affected health care-related lending, particularly in long-term care. The considerable increase in total leverage necessitated the extension of final maturity dates to enable companies to amortize significant amounts of principal during the later years. As senior debt multiples associated with these leveraged loans continued to rise, the financial buyers and lead lenders more frequently structured transactions with higher levels of "back-end" amortizing, institutional debt tranches. The "B" and "C" term loan tranches are senior obligations that bear interest rate premiums to traditional revolving credit and "A" term loans, and carry longer final maturities. These B and C tranches became commonplace in long-term care transactions in the second half of 1997. The robust growth of these various sources of institutional funding (for example mutual funds and collateralized loan obligation vehicles) has represented an important component of the successful structuring of these and other leveraged financings.
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Long-term care companies and post-acute care servicesLong-term care companies are expected to continue to develop and acquire a continuum of post-acute care services. These services are effected through the acquisition of home health care, assisted living, rehabilitation, and therapy services. In particular, Integrated Health Services has been a leader in this strategy, and we expect further movement in this direction as other long-term care companies increase their share of the post-acute dollar.
COMMENT:- By late 1998 the new funding system is beginning to bite and profits are falling. IHS seems to be aware of the financial consequences. It has built up enormous political capital by its donations to politicians. It tries unsuccessfully to capitalise on this by asking government to make an exception for IHS.
REQUEST DENIED? INTEGRATED HEALTH UNLIKELY
TO WIN HOME HEALTH WAIVER
Modern Healthcare Aug. 10, 1998 Page 6 News
Eric Weissenstein
Government officials are indicating they probably won't give Integrated Health Services an unusual exemption from the Medicare home health interim payment system. Integrated's chairman is Robert Elkins, M.D, a politically connected businessman who has lavished money on both Republicans and Democrats. He gave nearly $600,000 to the Democratic Party during the 1996 presidential election.But despite Elkins' push for the exemption, HCFA officials last week expressed deep skepticism about granting a waiver from the interim payment system to Integrated, which is based in Owings Mills, Md. However, there is a possibility the company could get another financial break by different means.
Elkins argues that Integrated deserves the break because it rescued the scandal-plagued First American Health Care, then the nation's largest privately held home health company, in October 1996. The company, previously known as ABC Home Health Services, and its founders had been convicted of Medicare fraud.
The corporation had fallen into Chapter 11 bankruptcy proceedings when Integrated agreed to buy it from the federal government in a transaction valued at $313 million. The purchase contract contained provisions protecting Integrated from losses, Elkins told Wall Street analysts during a conference call late last month. He said Integrated should be shielded - - - -
-------------------------------
Wall Street is also discounting the possibility. "They (Integrated) view themselves as white knights, bailing out the government and helping to provide access," said one of the analysts who was part of the Elkins conference call. "I would be surprised if they got this. I mean, how do you cut a deal for one guy?"
---------------------------
Elkins was one of the biggest contributors to the Democratic National Committee during the last presidential election. He also attended several of the White House "coffees" at which big donors met with President Clinton.All Modern Healthcare articles quoted are Copyright by Crain Magazine Communications, Inc.
Sun revolves around health care's
changes
Albuquerque Tribune October 08, 1998, Thursday
Leanne Potts and Macario Juarez Jr.
Some health-care industry analysts suggest that long-term care companies, as a group, tend to be undercapitalized, but Sun appears to be more undercapitalized than most.Beverly Enterprises, the biggest long-term care company in the United States, takes in annual pre-tax revenues totaling 4.3 times the amount of the company's annual debt costs.
Integrated Health Services, another long-term care provider, brings in 2.7 times its debt costs annually.
COMMENT:- IHS seems to realise that the new funding system is already having a major impact on its profits. It mounts an intense lobbying exercise to reverse some of the changes which are hurting it the most. The article below describes how competitors blocked its efforts to do this. The article does not report the money spent by the parties. The outcome follows the donations. Elkins was primarily a donor to the Democrats who supported IHS plan. His opponents donated more to the majority Republicans and they scuppered it.
NURSING HOME SKIRMISH: BATTLE OVER
COST-BASED REIMBURSEMENTS SPLITS INDUSTRY
Modern Healthcare October 26, 1998
As the smoke cleared from last week's passage of the massive federal spending package, nursing home chains were licking their wounds from an internal fight over a proposal that would have redistributed billions of dollars in Medicare skilled-nursing payments from one segment of the long-term-care industry to another.
----------------
The proposal was backed by Owings Mills, Md.-based Integrated Health Services, the nation's third-largest nursing home chain, and two major long-term-care groups, the American Health Care Association and the American Association of Homes and Services for the Aging.
-------------------
And each side enlisted giants of inside-the-Beltway healthcare lobbying to aid them. Integrated's chairman, Robert Elkins, M.D., a major Democratic contributor, along with nursing home executive Alan Solomont, a Democratic contributor and a 1996 presidential campaign fund-raiser, persuaded the White House to support Integrated's position.But Beverly countered with the lobbying clout of Michael Bromberg, the one-time head of the Federation of American Health Systems and a well-connected Republican lobbyist.
In the end, Bromberg, Beverly and HRC ManorCare won. The proposal failed because it could not generate enough support to be included in the omnibus budget bill passed early last week, despite the support of the Clinton administration and such top Democrats as Senate Minority Leader Thomas Daschle of South Dakota.
Integrated, AHCA and AAHSA were pushing to overhaul the Medicare prospective payment system for skilled-nursing facilities. Their objective was a return to cost-based reimbursement for such nontherapeutic ancillary items as drugs, laboratory tests and respiratory therapy.
The PPS for SNFs went into effect July 1.
-----------------------------------
Nursing home chains such as Integrated-which have specialized in post-acute care-claimed the PPS did not fully account for the high drug and laboratory costs accrued by complicated cases.
COMMENT:- The falling profits must be disclosed in IHS reports. They begin to realise the position they are in. They start selling off those areas where they are not going to make money - the home health nursing business they have just bought is an obvious choice - but who is going to buy a lemon? Everyone is trying to sell home care.
The company is not prepared to admit that its strategies were wrong. It remains positive about its long term prospects. What is clear is that the sort of care people are going to receive is going to be dramatically influenced by economic decisions made during political horse trading and by the board room responses to the crisis. Whether aging citizens get assistance with nursing in their own homes, live in an assisted living complexes, or get nursing home care is being determined primarily by abstract economic decisions made in totally different contexts. Clinical considerations are very secondary.
Integrated Health Services Reports Third
Quarter
PR Newswire October 30, 1998
Integrated Health Services, Inc. (NYSE: IHS) today announced revenues and earnings for the third quarter ended September 30, 1998.
Integrated Health Reports Net Loss
The Washington Post October 31, 1998
Integrated Health Services Inc. of Owings Mills, Md., reported a third-quarter loss of $ 158.3 million, compared with a profit of $ 18.3 million a year ago, but the recent quarter included a one-time charge of $ 201.2 million to account for the planned sale of its home health nursing business.
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IHS provides an array of health services, including nursing-home care and home-respiratory care.For the first nine months of the year, the company lost $ 78.8 million, compared with earnings of $ 28.4 million for the first nine months of 1997. But this year's figures also were depressed by the one-time charge.
Changes in federal Medicare reimbursements have eroded the financial performance of the home health nursing division, prompting the company to put it up for sale, chief executive Robert N. Elkins said in a statement. Next year, Medicare reimbursement changes are likely to depress earnings, but they will be positive for the company over the long run, IHS said.
Home nursing unit to be sold; Integrated
Health says Medicare squeeze jeopardizes viability; $ 200 million
charge; Health care
The Baltimore Sun October 31, 1998
Integrated Health Services Inc. said yesterday that it will sell its home nursing division because of lower Medicare payments, a move that led the Owings Mills company to post a charge of more than $ 200 million in the quarter that ended Sept. 30.
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After the charge, Integrated posted a loss of $ 158.3 million for the quarter, compared with a profit of $ 18.3 million in the year-ago period. Integrated also said it would take an earnings hit next year -- as much as 17 percent below this year's levels -- as the federal Medicare program shifts to a new formula for nursing home reimbursements.
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"Management has made it clear that the new reimbursement will have an adverse impact but the impact is less than some had feared," said John F. Hindelong, an analyst for Donaldson, Lufkin & Jenrette in New York.Similarly, Robert M. Mains, a health care analyst with Advest Inc. in Albany, N.Y., said the market welcomed the news of the home nursing sell-off. Home health, like nursing homes, has been under tighter Medicare reimbursement.
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Marc B. Levin, executive vice president, said Integrated still considers home nursing "a critical service and an important part of the network" but that given the "dramatic cut" in reimbursements, "from a financial standpoint it was not viable for us to continue to operate it."
SPURNING HOME HEALTH HEALTHSOUTH CEO:
WANING INTEREST CAUSING NOV. 1 EXIT
Modern Healthcare Nov. 2, 1998 Page 6 News
In what was viewed as a no-news item by Wall Street analysts, Birmingham, Ala.-based HealthSouth Corp. said last week that it would terminate its home health operations as of Nov. 1.
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"That still nets us out at about $300 million," Scrushy said, referring to the $400 million gain he said the company made on the sale of most of Horizon's long-term-care assets to Owings Mills, Md.-based Integrated Health Services soon after the acquisition.
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Vencor, a Louisville, Ky.-based long-term-care company, announced in May it was getting out of the home-care business. On Friday, IHS announced that it will sell its home health nursing division.
COMMENT:- Market analysts have seen the falling profits in the large corporate chains. They respond negatively by downgrading the industry. Instead of accepting the risk of bankruptcy, sectors of the market see this as an opportunity. They are buying IHS bonds. Note the way they accept that care will be downgraded in order to maintain profits. This does not concern them. That care will be compromised when there is less money is logical and we all know this. Corporations, regulators and politicians all maintain the illusion that cost cutting will not degrade care. Some even claim it will be improved because cost cutting improves efficiency.
Several Nursing Home Companies Placed on
S&P CreditWatch Negative
PR Newswire November 3, 1998
Standard & Poor's today placed its ratings for several nursing home companies on CreditWatch with negative implications (see list below). The CreditWatch listings affect over $8 billion in rated debt.
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RATINGS PLACED ON CREDITWATCH WITH NEGATIVE IMPLICATIONSIntegrated Health Services Inc.
Corporate credit rating - - - - - B+
Subordinated debt- - - - - - - - B-
Bank loan rating - - - - - - - - B+
Healthcare Sector: Poor Results, Good
Investments
High Yield Report November 9, 1998
Most companies in the industry are reporting their quarterly earnings numbers this week and last week and, as expected, the picture is not pretty. Stock prices on some of them got hit on the news, but the bonds are offering some good buying opportunities, according to investors.Margie Patel, investor at the Third Avenue Fund, said she is increasing her holdings of Sun Healthcare Group,- - - - - . Patel also is increasing Columbia/HCA Healthcare, which also missed expectations. - - - -
She is increasing her exposure because the bond prices are simply getting so cheap, she said. And the new standardized payment system, which is the cause of the poor results industry-wide, will be a short-term problem that is resolved, she said.
"You can't bankrupt the entire system ... somebody has to take care of these people," she said.
Many more investors would probably like to get into the sector because of its inherent domestic nature, but they are cautious due to the new "prospective payment system."
This payment system is an attempt to establish a national basis for healthcare costs and is forcing long-term health care providers to undergo major cost-cutting. Those cost-cutting moves typically include layoffs, less time spent with patients, and lower- paid professionals delivering the care. - - -
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- - people are now realizing the market may have overreacted.Integrated Health Services, as one example, was in the low 80s last month and was trading in the mid 90s last week, he said. Integrated has three issues: 10.25% of '06 totaling $150 million; 9.5% of '02 with $450 million outstanding; and 9.25% of '08 totaling $500 million.
ABANDONING SHIP: IHS, POST-ACUTE CHAINS
JOIN OTHER HOME-CARE DROPOUTS
Modern Healthcare November 09, 1998
Even the big dogs are starting to whimper.Hit by lower Medicare reimbursement rates under a transitional payment system implemented in October 1997, Medicare-certified home health agencies are leaving the business in droves.
More than 1,200 have closed this year, according to the National Association for Home Care.
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The latest company to abandon that strategy is industry giant Integrated Health Services, a post-acute care firm based in Owings Mills, Md.IHS, which provides post-acute services in 47 states, said late last month that it will sell its home-care operations, which include agencies at 500 locations in 29 states.
In an Oct. 30 conference call with investors, IHS Chairman and Chief Executive Officer Robert Elkins said the decision to leave home health nursing was ''the end of a very unfortunate experience for IHS. We went into home health because we felt it was a natural extension of post-acute care.'' But, he said, ''it is our belief that there is no relief for home care in the short or intermediate term.''
Elkins and IHS led an unsuccessful attempt in Congress this year to carve out ancillary services from the prospective payment system for skilled nursing, IHS' core business. The change, which failed to make it into the omnibus budget bill, was opposed by nursing home chains that benefit from the current system (Oct. 26, p. 6).
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Over the past two years, IHS had rapidly expanded its home-care business through acquisitions. But under the new payment system, those businesses could no longer operate profitably, Elkins said.The interim payment system for Medicare home health imposes per- visit and per-beneficiary caps. Agencies say these are too low to cover actual costs.
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Andrew Gitkin, a New York-based analyst at Salomon Smith Barney, said IHS probably made a mistake by getting into home healthcare in the first place.''(IHS managers) miscalculated the reimbursement environment. They tried their hardest to make it work, but it was a losing battle,'' he said.
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Other long-term-care companies, including Atlanta-based Mariner Post-Acute Network, are paring their home-care holdings as well, he said. ''But there is no other publicly traded company that has as much exposure in home health as IHS.''IHS' 500 home health agencies generate about 16% of the company's total annual revenues of $3 billion, Gitkin said.
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Until recently, IHS maintained that growing its home health business was part of an overall strategy to provide a continuum of care for its patients. In a March 1998 SEC filing, the company said it was expanding its home healthcare services to take advantage of payers' interest in having healthcare provided in the lowest-cost setting possible.
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Kathleen Dodd, president of the Corridor Group, an Overland Park, Kan.-based post-acute-care consulting group, said integration of post-acute services is overrated.''The idea was to be a one-stop shop,'' Dodd said. Theoretically, offering services along the continuum of post-acute-care allows a company to feed patients from one operating unit to another. But many companies, including IHS, apparently were unable to make such cross-referrals profitable, she said
Part of the problem, Dodd said, is that some companies were interested in their home health units less from an operations standpoint than from a financial one.
''The recognized cost-shift that was out there was a windfall for a lot of large organizations,'' she said. Under the new reimbursement system, companies can charge Medicare only minimal overhead costs.
Although the interim payment system went into effect a year ago, many home health agencies are only now responding. ''I call it the deer-in-the-headlights syndrome.'' Dodd said. ''Now they are all unfreezing.''
All Modern Healthcare articles quoted are Copyright by Crain Magazine Communications, Inc.
PROSPECTIVE PAY TAKES TOLL ON HEALTHCARE
SECTOR
Bank Letter December 21, 1998
Healthcare companies are flocking back to the bank market to loosen covenants on their credit agreements as they wrestle with Medicare's prospective pay system, bankers said. The prospective pay system introduces fixed reimbursement for service providers and will likely reduce their revenue, an event that could make some companies breach their covenants. The new system will start being phased in Jan. 1, 1999. Companies currently seeking amendments to the credit agreements reportedly include Mariner Post-Acute Network and Integrated Health Services. Sun Healthcare and Genesis Health Ventures are among companies that have already altered leverage covenants.One banker noted, "If the deals were done today, there wouldn't be so much leverage." - - - - - IHS has been trading in the 96 range for some time, added a trader. If both companies are granted an amendment and increase the pricing on their facilities, traders expect the credits to trade up.
COMMENT:- IHS' Home Nursing Care is eventually sold - for a pittance but they have little choice. Another way of raising cash when you are short is to sell the homes or hospital to another entity then lease them back. Alpha Healthcare did this in Australia when it was under pressure recently. IHS also tried it.
MEDSHARES BUY EXPANDS HOME CARE; MEDICARE
CUTS CREATE OPPORTUNITY, FOUNDER SAYS
The Commercial Appeal (Memphis, TN) February 2, 1999
Medshares Inc., a Memphis-based home health care company, completed its largest acquisition Monday, buying the home nursing division of Integrated Health Services.
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"All this devastation in the industry has created a buying opportunity for us, as a privately held company with cash and no shareholders to answer to," Winters said. "We are able to buy up the industry at relatively low prices."
TENET THINKS IT HAS A WINNER IN ITS PHILLY
REHABILITATION EFFORT
Modern Healthcare April 19, 1999
A home bath. Companies that snapped up home health agencies at a premium as little as three years ago are now unloading them for a pittance, according to recent filings with the Securities and Exchange Commission.The fire sales are the industry's reaction to Medicare reimbursement cuts for home nursing under the 1997 balanced-budget law.
To give just two examples:
Owings Mills, Md.-based Integrated Health Services disclosed it had sold part of its home health agency business for $12.7 million. The February sale, to Medshares/IHS Acquisition, an affiliate of Memphis, Tenn.-based Medshares, included 69 agencies with 251 locations. The sale works out to about $51,000 per location.
IHS acquired the bulk of its home health agencies in 1996, when it agreed to pay about $772,500 per site-$309 million in total-to acquire the 400 sites owned by First American Health Care of Georgia, Brunswick. That figure includes $155 million payable in instalments starting next year.
IHS and new parent company operating as
Soleus Healthcare
Sarasota Herald-Tribune July 24, 1999, Saturday
Following its sale this year, IHS Home Care has changed its name to Soleus Healthcare Services, the company said.
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The changes stem from the sale of IHS Home Care this year. IHS was a division of Integrated Health Services Inc. of Owings Mills, Md., a company that also operates nursing and other long-term-care facilities.
MEDSHARES FILES FOR CHAPTER 11
The Commercial Appeal (Memphis, TN) July 30, 1999,
Medshares Inc. of Memphis and Soleus affiliated home health care companies filed for U.S. Bankruptcy Court protection Thursday after running out of cash and being cut off by their lender.Medshares was forced to restructure its operations 10 months after buying 70 home health agencies from Columbia/HCA Healthcare Corp. of Nashville, and six months after making its largest acquisition, the home nursing division of Integrated Health Services.
Integrated Health Services Sells 32
Facilities for $135 Million to Pay Down Debt
PR Newswire January 22, 1999
Integrated Health Services, Inc. (NYSE: IHS) announced that it has sold 32 facilities to Monarch Properties, L.P. for approximately $135 million in net cash proceeds. The funds will be used to pay down debt. Monarch Properties is a newly formed private company.Monarch has leased these facilities to consolidated subsidiaries of Lyric Health Care LLC an entity 50% owned by IHS. Lyric has hired IHS as manager to operate the facilities and will pay IHS a management and franchise fee.
COMMENT:- IHS already leases nursing homes from Omega, a REIT. Omega bails it out when it needs some cash. They both need to get a home working to generate some money.
West Palm nursing home receives $ 28.9
million in new financing
PALM BEACH DAILY BUSINESS REVIEW February 10, 1999
Central Park Lodges of West Palm Beach Inc. has refinanced a nursing home at 2939 S. Haverhill Road.Omega Healthcare Investors loaned $ 28.9 million to the company, which is affiliated with Integrated Health Services Inc. in Owings Mills, Md.
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The 120-unit facility was built in 1991 and went into foreclosure beforecompletion.
COMMENT:- The financial position gets worse and worse. Like Sun and Vencor, IHS sacks thousands. Either people were receiving care which they did not need when it was profitable or people are not getting the care they need now because it is no longer profitable.
They also try to sell off RoTech, a company bought a little more than a year ago.
Integrated Health Services Announces
Fourth Quarter Expectations
PR Newswire February 11, 1999
In response to the Medicare prospective payment system, the company has experienced a reduction in demand for therapy services in its contract rehabilitation division. Customers of the company's contract rehabilitation division are admitting fewer Medicare patients and are reducing utilization of rehabilitative services. The reduction of services has also resulted in a lower productivity of therapists. The company has eliminated 1,000 positions and expects further reductions. More detailed information will be available at the time of the company's formal release of year-end results, in March 1999
Integrated Health Services Exploring
Strategic Alternatives
PR Newswire February 11, 1999
Integrated Health Services, Inc. (NYSE: IHS) today announced that the Board of Directors has authorized the company to explore the monetization of its RoTech Division. Alternatives being considered include an initial public offering for all or part of RoTech or a sale of the division to a financial or strategic purchaser. Additionally, the company has confirmed that there have been discussions with financial organizations interested in a leveraged buyout and these discussions are on-going
Health chain turns pale; IHS has suffered
82% stock plunge, cut 1,000 jobs; Medical services
THE BALTIMORE SUN February 21, 1999
M. William Salganik
But recently:The stock lost more than 80 percent of its value, plummeting from a 52-week high of $39.375 in April to an all-time low of $7.0625 on Friday.
IHS warned Feb. 11 that earnings for the last quarter of 1998 are likely to be 35 to 45 cents a share, not the 75 cents expected by analysts.
The company took a charge of more than $200 million in the third quarter of last year to cover losses in its home care division and to write down the subsidiary's assets.
IHS was forced to eliminate 1,000 jobs in its contract therapy division and was expecting " further reductions" in its overall work force of more than 80,000 employees in 47 states.
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The upheaval has meant a shift in strategy for IHS, one of the pioneers in revolutionizing nursing home care.
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Ball and chain'In August, it sold its pharmacy operations, saying they were too small to be efficient. This month, it sold its money-losing home care division. "Home care has been a ball and chain for them," Ray said.
Then, to raise cash to reduce debt and boost the sagging stock price, the company announced it might sell or spin off all or part of its successful RoTech division, which provides patients with home respiratory therapy and durable medical equipment, such as wheelchairs.
"Clearly, they're focusing more of their efforts on the nursing home side," said Mains, the Advent analyst.
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IHS officials declined to be interviewed for this article. But in its Feb. 11 earnings warning, IHS said the new Medicare system seemed to be working about as expected in its subacute facilities but had caused a big drop in volume for its contract rehabilitation therapy division, which provides therapy to other nursing homes.In the short term, IHS is looking to reduce its debt load. In January, for example, it sold 32 nursing homes for $135 million in cash to a real estate investment trust founded by Elkins.
The REIT, in turn, leases them to a company owned half by IHS and half by an IHS board member. The leasing company hires IHS to run the homes.
A sale of RoTech could raise a lot more cash. Several analysts estimate its value at about $1.2 billion.
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Market share doesn't help if costs exceed reimbursement, so IHS and the other companies are struggling to adjust.Mains said of the industry, "In the real long term, it's going to be fine. There's a growing demand and limited supply."
But all of the analysts expect the industry to languish for several quarters -- perhaps several years -- as it adjusts to the new reimbursements. "1999 is just going to be a disastrous year for the nursing home industry, probably the most difficult year they're going to have," Monroe said.
"Until the Bob Elkinses of the world figure out the next great wave for nursing homes, it's going to be a period of change and slow growth."
5 Healthcare Firms Ratings Cut By S&P
Over Medicare Changes
Dow Jones Newswires March 3, 1999
The ratings for these companies - Genesis Health Ventures Inc., Integrated Health Services Inc., Mariner Post-Acute Network Inc., NovaCare Inc., and Sun Healthcare Group Inc. - remain on CreditWatch with negative implications, S&P said.RATINGS LOWERED AND REMAINING ON CREDITWATCH NEGATIVE
- - - - - - - - - - - - - - - - - - - -
- Integrated Health Services Inc. - - - - - To - - - - - FromCorporate credit rating ____________ B- ______ B+
Subordinated debt _______________ CCC ______ B-
Bank loan rating ________________ B- ______ B+
Integrated Health Services Reports Fourth
Quarter and Year-End Results
PR Newswire March 9, 1999
In response to the Medicare prospective payment system, the Company has experienced a substantial reduction in demand for therapy services in its contract rehabilitation division which has adversely impacted earnings. Customers of the company's contract rehabilitation division are admitting fewer Medicare patients and are reducing utilization of rehabilitative services. The Company believes that the reduction in admission of Medicare patients is due to fears of smaller operations over their ability to cope with the new Medicare PPS -- both financially and administratively.In order to address the revenue fall-off and reduced Medicare admissions, the Company will be reducing costs and will be working with its customers to help them better understand how to operate under PPS. The Company eliminated 1,000 positions in December and transitioned its therapists from salary to hourly. Additionally, the Company is implementing wage reductions and will pay its therapists only for productive time.
COMMENT:- We still have the same patients with the same illnesses but when the funding is changed so that providing therapies is no longer very profitable, the demand for therapies vanishes. The way in which the market sees no further than the glib explanation that demand has fallen is well illustrated in the next article. This is the way people who are now responsible for the welfare of the sick and vulnerable think.
IHS TAKES OUT KNIFE TO REGAIN
PROFITABILITY
Modern Healthcare March 15, 1999
When the going gets rough, long-term-care companies get tough.Faced with lower revenues from Medicare for skilled-nursing patients under a new prospective payment system, Integrated Health Services has kicked off a leaner, meaner strategy it hopes will juice up profits.
In recent months, IHS has laid off staff, cut salaries, jettisoned a money-losing business and explored the possibility of selling a profitable business. Early returns indicate the downsizing is working.
Although Owings Mills, Md.-based IHS reported a net loss of $68 million in 1998, it posted net income of $10.8 million on $719 million in revenues for the fourth quarter ended Dec. 31, 1998.
IHS has engineered its turnaround by cutting expenses faster than revenues are falling.
Late last year, the company saw a sharp decline in revenues from its contract rehabilitation division. IHS provides contract rehabilitation services at 1,200 locations and operates 326 nursing homes and other long-term-care facilities.
In response to the revenues drop-off, the division trimmed 1,000 therapists and lowered salaries for the remaining 5,000. In addition, the company now pays only for productive time,'' when therapists are actually seeing patients. The company has also cut its contribution to employees' health benefits and may also downsize the company itself.
In February, the company said it was exploring a sale of RoTech, its home oxygen and infusion unit. The company had just sold its 69 home health agencies with 251 locations in 22 states to Memphis, Tenn.-based Medshares.
IHS had considered selling its lithotripsy and diagnostics units but abandoned the idea when it was unable to get what it considered a fair price, Chairman and Chief Executive Officer Robert Elkins told investors last week.
IHS will try to sell RoTech, which it values at $1.5 billion, in the next six months, Elkins said. In the fourth quarter 1998, RoTech earned $41.3 million before interest, taxes and other adjustments on $146.6 million in revenues.
Integrated Health Services Amends Credit
Agreement
PR Newswire April 2, 1999
Integrated Health Services, Inc. (NYSE: IHS) today announced that it has amended its $2.15 billion credit facility. The credit facility consists of a $1 billion revolving credit facility and a $1.15 billion term loan. Citibank, N.A. acted as administrative agent, with 81 other lenders participating in the credit facility. The amendments to the credit facility include revisions to the financial covenants to reflect the financial impact of the Medicare prospective payment system.
COMMENT:- That the problems are primarily due to the business and patient care policies of the companies and were only precipitated by the funding changes is illustrated in the following article.
Outcry Grows Over Nursing Home PPS Losses,
But Some Are Doing Fine.
Medicine & Health April 26, 1999
Perhaps the most dramatic evidence of the new straightened circumstances in which nursing home owners find themselves was the decision last month by Standard & Poor's to lower the debt ratings on five major operators: Genesis Health Ventures, Integrated Health Services, Mariner Post-Acute Network, NovaCare, and Sun Healthcare Group. Those five were singled out because they are highly leveraged and S&P said it had worries about "the increasing impact of PPS on corporations laden with substantial debt."
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But not every long term care facility is hurting. For one thing, many never went after Medicare business, so they are unaffected by the change. A lot of not-for-profit homes have relied heavily on private-pay residents, often those from churches or other organizations affiliated with the home's sponsor.But even with Medicare business, many of what Greub calls "plain vanilla" nursing home firms are doing okay with PPS. The new payments for their patients are lower than before, but not precipitously so. Where Medicare may be paying $ 250 a day for a patient now, that represents a halving of the rates Sun had been receiving, but a drop in the $ 50-75 range for Beverly Enterprises or HCR Manor Care. Moreover, those chains have been operating relatively efficiently - an attribute that was not rewarded in the cost-plus system of compensation. They now can reap the benefits of their leaner operations.
In addition, one expert in the field notes, the winners and loser under the new system "sort of has to do with how much you gamed the system in the first place." Those who didn't let the reimbursement system become the basis of their treatment strategy now are doing better than those who depended on finding techniques to wring every last dollar out of Medicare.
Integrated Health Services Reports First
Quarter
PR Newswire April 30, 1999
The decline in revenue and earnings are primarily the result of the implementation of the Medicare prospective payment system (PPS).
COMMENT:- How odd that IHS customers (presumably the hospitals and doctors whose funding is DRG based and not changed by the new payment system) are no longer admitting Medicare patients. One can only wonder whether the common corporate practice of securing admissions by paying kickbacks has been abolished now that Medicare patients are no longer profitable.
Integrated Health surprises with loss of
13 a share; Medicare-payment change is blamed; Health care
THE BALTIMORE SUN May 1, 1999
Integrated Health Services Inc. said yesterday that it had a net loss of $6.6 million, or 13 cents a share, in its first quarter, a result the company attributed to the adverse impact of a new Medicare payment system. For the first quarter of 1998, the Owings Mills-based company posted net earnings of $37.6 million, or 73 cents a share.
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"The new reimbursement system is having a dramatic change on the way care is delivered in nursing homes," Levin said. "It's not a short-term phenomenon."
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Also, yesterday, IHS released the proxy statement it filed with the U.S. Securities and Exchange Commission that showed Robert N. Elkins, the chairman and chief executive officer, was paid $809,935 in 1998.
Integrated Health Services to Operate
NovaCare's Contract Rehabilitation Division
PR Newswire May 28, 1999
Integrated Health Services, Inc. (NYSE: IHS) announced that effective June 1, 1999 it will operate, through a management agreement, NovaCare, Inc.'s (NYSE: NOV) long-term care contract rehabilitation division which was sold to a newly formed company. The transaction will enable IHS to increase the market density of its existing contract rehabilitation division called RehabWorks.Under the terms of the agreement, Chance Murphy, Inc. a newly formed company will acquire the long term care contract rehabilitation business from NovaCare for a nominal amount. Chance Murphy, Inc. has hired IHS to manage the business under a comprehensive long term management agreement whereby the management fee will equal substantially all of the cash flow of the operations.
COMMENT:- The corporate lobby appears to be persuading government to bail them out and the market responds by buying IHS.
IHS LEADS HEALTH CARE COME BACK AS
GOVERNMENT MULLS PROBLEMS
Bank Letter May 3, 1999
Integrated Health Services led a sharp rebound by several health care service providers last week as $ 30 million of the company's bank debt changed hands at 91 1/2-93 in secondary trading. Bankers noted IHS was trading up from a low point of 88 1/2 three weeks ago and said efforts by health care companies to attract the government's attention to their plight had improved investor sentiment in the sector."Once the government gets involved, things start to change a little bit," one banker said. The trades were mainly taking place in the Street. "Dealers are offering it in the Street market and institutional guys and high-yield guys are buying it," a trader said. IHS' $ 2.15 billion credit is led by Toronto-Dominion Bank and Citigroup. Officials at the company did not return calls.
Integrated Health chief took a cut in '98;
No bonus for Elkins as earnings disappoint; Executive pay
THE BALTIMORE SUN May 8, 1999
He did collect $809,935 in salary. In 1997, Elkins picked up $752,277 in pay and $3.25 million in bonuses.The company, which is based in Owings Mills and operates nursing homes and other health businesses, agreed to pay $14 million in severance and other payments to its departing president, Lawrence P. Cirka.
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Elkins, who founded the company in 1986, receives a bonus equal to his annual salary if the company meets earnings goals set by the board of directors, according to the proxy statement.
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He also received bonuses over the past few years tied to the sale of IHS' pharmacy division, the spinoff of a subsidiary and the acquisition of a home health company that has since been sold.
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Integrated stock, which traded at nearly $40 a share a year ago, fell 25 cents in trading yesterday to close at $4.50 a share.
IHS reports loss of 10 cents a share for
second quarter; Reduced payments by Medicare blamed; Earnings
The Baltimore Sun, July 22, 1999
Integrated Health Services Inc. said yesterday that it had a net loss of $4.6 million, or 10 cents a share, in its second quarter, a result the company attributed to the continuing adverse impact of a new Medicare payment system
Bankruptcy of Health Care Operators Could
Signal Health for Sickly REITs
TheStreet.com September 20, 1999 Monday
Could it get any worse for the chronically ill health care real estate investment trusts? Having spent much of the year in intensive care -- the average health care REIT has lost 18.7% so far this year, and yes, that includes an average dividend of more than 12% -- the group tested investors' faith again when health care operator Vencor (VCRI:Nasdaq OTC BB) filed for bankruptcy last week. That filing put into doubt the viability of both Vencor and its sister REIT, Ventas (VTR:NYSE), which derives 99% of its revenue from Vencor -occupied facilities.More Challenges Ahead
The real test for health care REITs will be when one of the troubled major operators files for bankruptcy. "Who's next?" asks Sutro & Co. analyst Craig Silvers. "There are a number following close behind" Ventas. Sources say health care operators in financial distress include Sun Healthcare Group (SHG:NYSE), Mariner Post-Acute Network (MPN:NYSE), Integrated Health Services (IHS:NYSE), Balanced Care (BAL:Amex) and Assisted Living Concepts (ALF:Amex). All lease properties from health care REITs.
As profits continue to plummet, and IHS is unable to find buyers the message gets through to the market. The downward slide is swift - negative reviews, delisting from the stock market, an inability to meet interest payments, and finally chapter 11 bankruptcy.
Integrated Health Services Makes
Announcements
PR Newswire October 19, 1999, Tuesday
Integrated Health Services, Inc. (NYSE: IHS) today announced that it has suspended its efforts to sell its RoTech division. The Company indicated it had not received an acceptable offer for the sale of the division. The Company had previously disclosed that it was exploring the sale of its RoTech division which provides diversified home respiratory care and durable medical equipment products.The Company also announced that it anticipates a loss for the third quarter ended September 30, 1999 which will exceed the loss in the second quarter ended June 30, 1999. The Company expects to announce third quarter results in November.
The Medicare Prospective Payment System has had a dramatically negative impact on the industry and Integrated Health Services' revenues, cash flow and liquidity. IHS has retained Warburg Dillon Read, LLC as its advisors and KPMG LLP as its consultants to analyze strategic alternatives including restructuring the Company's debt, selling assets other than RoTech, and raising additional capital, among other things. The Company anticipates beginning preliminary discussions with its senior lenders shortly. Its advisors and consultants will be assisting in these discussions, as well as in pursuing other strategic alternatives.
Cost Plus Added to S&P SmallCap 600
Index
Business Wire October 20, 1999, Wednesday
Oct. 20, 1999--Standard & Poor's will replace Integrated Health Services (NYSE:IHS) in the S&P SmallCap 600 Index with Cost Plus (NASDAQ:CPWM) after the close of trading on Thursday, October 21, 1999. Integrated Health Services is being removed for lack of representation.
Briefs from Sparks, Baltimore
Associated Press Newswires 10/21/1999
SPARKS, Md. (AP) - Integrated Health Services has hired consultants to help prepare for the sale of its assets, a debt restructuring, or possible bankruptcy.The Sparks-based chain of nursing homes has lost millions in recent months, due in large part to reductions in reimbursements from the federal government.
IHS's stock, which was valued at $40 earlier this year, closed at 25 cents Wednesday, making it nearly impossible to secure new investment.
The company listed its debt at $3.4 billion with assets of $5.4 billion in documents filed with the U.S. Securities Exchange Commission.
However, $3 billion of the company's assets are estimates of the worth of various purchases by IHS based on the profits of those companies.
Few of those acquisitions are still making a profit.
COMMENT:- Note the way in which the market analysts comments on IHS intention to offset payment reductions by increasing the number of days patients spend in its centres. They see nothing wrong or immoral in keeping patients in a nursing home longer than needed. It is simply a business decision. A business decision by the insurers has prevented it. Sick people are in the system to generate profits and their care has consequently been determined by which powerful group gets its way and so the profits - in this case the insurers. This is the new world of corporate medicine.
Reform flattens health provider; Care:
Integrated Health Services has plummeted within two years, a victim
of Medicaid reform and ill-fated decisions.
THE BALTIMORE SUN October 31, 1999, Sunday ,FINAL
Integrated Health Services Inc., the Sparks-based health care giant that flourished by undercutting higher-cost hospitals, finds itself on the critical list, thanks in part to the same cost-cutting pressures that fueled its spectacular growth.Weighed down by staggering debt and shrinking revenue, the once-pioneering IHS warned this month of growing losses and a squeeze on cash flow. It hired investment house Warburg Dillon Reed LLC and business consultant KPMG LLP to assist in talks with lenders and to develop strategies.
The company's plight has put it on analysts' watch list of big companies in the industry that might seek Chapter 11 bankruptcy protection.
"I think the writing is on the wall for them," said Premila Peters, high-yield analyst for KDP Investment Advisors in Montpelier, Vt. " The question of the day is how much cash do they have left to keep going."
Analysts think a bankruptcy filing could come by year's end.
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The company's mounting woes have erased more than $2 billion in shareholder wealth, reducing its market value to $14.9 million as IHS stock has plummeted from $40 in June of 1998 to 28.13 cents Friday.Analysts say several miscalculations by IHS created the reckoning it faces.
Among them:
The company incorrectly assumed it could reduce operational costs faster than it lost revenue from Medicare payments. It is still struggling to bring down costs.
IHS assumed that it could offset some payment reductions by increasing the number of days patients stayed at its centers. But insurance limits on the time patients can stay at sub-acute centers crimped that plan.
The company did not foresee that customers and payments for ancillary or rehabilitation therapy for such patients as stroke victims would decline, further depressing revenue.
Though IHS and other health providers blame the new Medicare payment system for their plight, analysts say company executives contributed to the problems with acquisitions, repurchases of company stock and taking on more debt even as the budget ax was falling.
"They didn't take steps they could have to conserve cash. Cash is king. Now they are sitting on a ton of debt," said Peters at KDP.
In its Oct. 19 announcement, the company, which carries $3.4 billion in debt, also disclosed that it was suspending an effort to sell its RoTech division.
------------------------------
The company's debts are tied, in part, to a string of acquisitions IHS made between 1994 and 1998, as part of a bold strategy to broaden services.Integrated Health Services was founded in 1986 by Dr. Robert N. Elkins, a 55- year-old Ivy League-trained physician, who saw opportunity in the national push to hold the lid on health care costs. He built a network of centers that provided rehabilitation services and sub-acute care for those released from hospitals but too sick to go home, specialty therapy services for nursing home residents and home care services.
The reclusive Elkins, who serves as IHS's chairman, chief executive officer and president, declined to be interviewed about the company's situation, as did other company executives.
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Standard & Poor's has lowered its credit rating on the company to near "junk" bond status, a move that makes it impossible to borrow further to make debt payments. The company's bonds currently trade for about 6 cents on the dollar.The string of bad news comes as the company sets up operations and 1,500 employees at a new multimillion-dollar headquarters in Highland Business Park north of Hunt Valley.
Spending on improvements such as the new headquarters building, and IHS's $24 million stock buyback program this year came at a time when the company should have been conserving cash to weather the transition to the new Medicare payment system, say analysts.
Such decisions in the face of revenue cuts fueled Wall Street's flight from the company.
The changed times are a marked contrast to the heady days of 1994 when the company raised $100 million in a third public offering of its shares on Wall Street.
---------------------------------
The new system has been particularly tough on IHS because the company had invested heavily in so- called ancillary care services, such as respiratory therapy, in an effort to be a one-stop provider for those needing medical care outside a hospital, said Maines, the industry analyst.Linda Keegan, vice president for the American Health Care Association in Washington, says companies such as IHS which invested heavily in providing rehabilitative services, have been hit particularly hard by a PPS provision that places a $1,500 a year ceiling on patients needing such services.
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Maines, the industry analyst, said, "It's like an executive in the industry told me the other day: 'This isn't a life preserver. It's a piece of driftwood.' "
Provider IHS unable to pay bond interest;
Integrated Health skips $7.7 million in debt obligation
BALTIMORE SUN November 2, 1999, Tuesday ,FINAL
Integrated Health Services Inc. announced yesterday that it will not make a required interest payment on $150 million in bonds, the latest sign that the Sparks-based health-services provider is facing a severe liquidity crisis.IHS' decision to skip the $7.7 million in interest payments that was due yesterday comes on the heels of two consecutive quarterly losses totaling more than $10 million, significant layoffs and a sharp drop in the value of its common stock.
The company's stock closed yesterday at 31.25 cents a share, up 3.125 cents, before the company's announcement. In April last year, IHS' stock traded for $39.375.
-------------------------
IHS officials did not respond to telephone calls yesterday.
-----------------------------
IHS said that under the terms of the senior subordinated notes on which the interest was due, it has a 30-day grace period before a default on its debt would occur.The company could face having to pay the full value of the $150 million worth of notes if the interest payment is not made within the grace period.
Integrated Health Services Reports Third
Quarter And Makes Other Announcements
PR Newswire November 15, 1999, Monday
As a result of the financial results for the third quarter, the company is out of compliance with certain financial covenants in its bank credit facility. The Company will be seeking a waiver to its credit agreement, but the Company can not predict when or if a waiver will be obtained. Separately, IHS announced that it has elected not to make the interest payment of approximately $17 million due today under its bank credit facility. The Company has indicated to its senior lenders that the suspension of the interest payment is necessary to preserve liquidity to operate the business. The Company has begun active discussions with its lenders regarding the restructuring of the Company's debt.
Buffeted IHS reports loss in third
quarter; Firm not complying with some covenants in bank credit line;
Bankruptcy near?; Poor earnings blamed on new Medicare payment
method
THE BALTIMORE SUN November 17, 1999, Wednesday ,
Integrated Health Services Inc., the struggling Sparks-based health care provider, yesterday reported a third-quarter loss, and revealed it is not in compliance with certain financial covenants with its bank credit line.The company also disclosed it did not to make an interest payment of approximately $17 million that was due yesterday. Earlier this month, IHS said it elected not to make a $7.7 million interest payment on $150 million in
Analysts said IHS is likely to file for bankruptcy soon.
-------------------------------
"The implementation of PPS is clearly having a devastating impact on the revenues and cash flow of our industry and IHS," Robert N. Elkins, the company's chairman and chief executive, said in a statement yesterday.
Health Firm in Survival Struggle;
Executive Compensation Questioned in Wake of $1.8 Billion Loss
The Washington Post November 19, 1999, Friday
Integrated Health Services Inc., once a powerhouse in the health-care industry, is clinging to the critical list with its vital signs fading.After growing fast and paying its CEO millions during the 1990s, Integrated has been in a downward spiral in 1999. The company reported this week that it lost $ 1.8 billion in the third quarter as it wrote down the value of assets. It also failed to make two interest payments totaling $ 24.7 million, including $ 17 million due earlier this week. Integrated Health shares, which traded as high as $ 38.37 1/2 in early 1998, closed yesterday at 31 1/4 cents.
-----------------------------
"All this most likely points to a Chapter 11 filing," said Philip Acinapuro, a junk bond analyst for the firm Dabney Flanigan, which specializes in distressed securities. Integrated financed its rapid expansion with junk bonds.
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Integrated was a pioneer in the field of "subacute care," providing care for patients who need round-the-clock nursing services but don't need to remain in a hospital. The strategy was billed as a less-expensive alternative to continued hospitalization and helped differentiate Integrated from traditional nursing-home companies. Integrated expanded through aggressive acquisitions and more than $ 3 billion of borrowing. Much of Integrated Health's revenue--the company had sales of $ 2.9 billion in 1998--comes from Medicare, the federal insurance program for the elderly and disabled.That reliance left the company badly exposed when the government overhauled Medicare payments under the Balanced Budget Act of 1997, trying to impose what policymakers thought was needed financial discipline. Integrated felt the squeeze in its own nursing homes, even as other nursing homes reduced demand for Integrated's contract services. "Essentially they doubled down the bet on Medicare," said Robert M. Mains, an investment analyst at Advest Inc.
COMMENT The article above writes at length about Elkins financial relationships with IHS. These extracts are in the page on Elkins.
Integrated Health Services Will Miss
Payment
Bank Loan Report November 22, 1999
The ailing health care sector recorded its latest casualty last week when Integrated Health Services Inc. announced it will not make a $17 million interest payment due on its $2.15 billion credit facility.In explaining its decision to suspend the payment, the company cited the necessity of preserving liquidity, blaming changes under the Medicare prospective payment system for continuing shortfalls in earnings.
Operating losses in the third quarter amounted to $41.3 million, a huge increase from the $4.6 million in losses incurred in the second quarter and the $6.6 million lost in the first quarter of this year. In addition, the company took a charge of $1.78 billion, for a net loss of $1.82 billion. Last year, Integrated Health Services posted net earnings of $137 million. Revenues so far this year total $1.9 billion, compared to $3 billion last year.
Hitting bottom ; Aggressive acquisitor
Integrated Health Services stung by PPS, takes $1.8 billion in
charges
Modern Healthcare November 22, 1999, Monday
After posting what analysts said was the largest bottom-line loss in nursing home history, Integrated Health Services last week defaulted on $17 million in interest due on bank loans and began discussions with lenders to restructure its debt.The news followed IHS' failure earlier this month to pay $7 million in interest due to bondholders and an announcement in October that it had abandoned efforts to sell its RoTech division, a respiratory therapy provider.
The company's filing with the Securities and Exchange Commission acknowledged that the Sparks, Md.-based company might seek a court-approved reorganization.
Integrated Health Services Elects Not to
Make Interest Payment
PR Newswire November 29, 1999, Monday
Integrated Health Services, Inc. (NYSE: IHS) today announced that the 30-day grace period for the interest payment due on the Company's $150 million 10.25% Senior Subordinated Notes due 2006 has expired and the Company has elected not to make the interest payment. As previously announced, the Company is in discussions with its lenders regarding the restructuring of the Company's debt.
IHS TRADES DOWN AS SELLERS SHOW UP
Loan Market Week December 13, 1999
Integrated Health Services' term loan "C" paper slipped 3 points last week, as the sudden appearance of a number of sellers drove the price down, according to dealers. Traders said $ 15 million of the paper changed hands in a retail sale at 48, and other potential sellers were seen.
----------------
Traders said IHS' paper is very volatile, which leads to lots of fluctuations in price. --------- The credit is volatile, large and a bunch of sellers showed up.
Integrated Health Services Makes
Announcements
PR Newswire December 17, 1999, Friday
Integrated Health Services, Inc. (NYSE: IHS) today announced that it has been notified by the New York Stock Exchange (NYSE) that it has fallen below its continued listing criteria relating to (a) total stockholders' equity less than $50 million in conjunction with global market capitalization less than $50 million and (b) 30 day average share price less than $1.00.The Company's common stock will be suspended from trading on the NYSE prior to the opening of the market on Thursday, December 23, 1999, or earlier upon the occurrence of certain events. The Company will take the necessary steps to allow the stock to trade on the over-the-counter Bulletin Board.
BTM REPORTEDLY SELLS IHS
Loan Market Week December 20, 1999
Original lender Bank of Tokyo-Mitsubishi reportedly auctioned off $ 10 million of Integrated Health Services term loan "C" paper last week, in a move to reduce exposure to the health care sector. One dealer said the bank holds a lot of health care company paper and decided to drop some of IHS' as a way to trim holdings.
Integrated Health Services Addresses OTC
Bulletin Board Trading
PR Newswire December 23, 1999, Thursday
Integrated Health Services, Inc. today announced an application has been filed with the National Association of Securities Dealers' OTC Bulletin Board Service to trade IHS common stock. The Company has been notified that approval to begin trading on the OTC Bulletin Board Service will not be obtained prior to the end of the year. The Company anticipates approval will be received in early January.
Integrated Health Services Elects Not to
Make Interest Payment
PR Newswire January 3, 2000, Monday
Integrated Health Services, Inc. (NYSE: IHS) today announced that it has elected not to make the interest payment of approximately $4.1 million due today on the Company's $143.8 million 5.75% Convertible Senior Subordinated Notes due 2001.
IHS misses third debt payment; Another
blow befalls one of premier names in institutional care; $4.1 million
was due; Firm hopes to sell stock again, but analysts say turnaround
is unlikely; Health care
THE BALTIMORE SUN January 4, 2000, Tuesday ,FINAL
The New York Stock Exchange suspended trading in the company's shares Dec. 23. Shares trading for $40 in the summer of 1998 were worth about 17 cents at the end of November.
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But industry analysts say Integrated Health's financial troubles become more difficult to surmount each day, particularly since the company has said its common stock will likely have little or no value even if its debt troubles are resolved.
Integrated Health Services Trading Moves
to Over-the-Counter Bulletin Board
PR Newswire January 5, 2000, Wednesday
Integrated Health Services, Inc. (OTC Bulletin Board: IHSV) today announced that its common stock will begin trading on the National Association of Securities Dealers' OTC Bulletin Board Service effective immediately. The stock symbol will be "IHSV."
Nursing-Home Company Shaky Chapter 11
Looms; Firm Has N.M. Sites
Albuquerque Journal January 7, 2000, Friday
Maryland-based Integrated Health Services Inc., which operates 28 nursing homes in New Mexico, will probably file for bankruptcy protection soon, according to a bankruptcy expert and a state health-care official.Integrated Health of Sparks, Md., said such a filing should be expected during the first quarter of this year, said Steve Dossey, deputy director of the Health Improvement Division of the New Mexico Health Department.
Computer Blamed for Late Pay
The Washington Post January 19, 2000, Wednesday, Final
Edition
About 2,000 employees of financially troubled Integrated Health Services Inc. did not get paid as scheduled Friday morning because of a computer error, a spokesman for the Sparks, Md., nursing-home company said yesterday.
Integrated Health Services Elects Not to
Make Interest Payment
PR Newswire February 1, 2000, Tuesday
Integrated Health Services, Inc. (OTC Bulletin Board: IHSV) today announced that the 30-day grace period for the interest payment due on the Company's $143.8 million 5.75% Convertible Senior Subordinated Notes due 2001 has expired and the Company has elected not to make the interest payment.
IHS accepts bankruptcy and the long process of restructuring starts. It is a time for reflecting about what happened and drawing conclusions. Some spell out the problems but others rationalise and cling to misconceptions.
Integrated Health Services Files Voluntary
Petition for Bankruptcy Reorganization; Company to Continue Normal
Operations; Receives Commitment for Up To $300 Million in DIP
Financing
Company Press Release - Integrated Health Services, Inc.Wednesday
February 2,
SPARKS, Md., Feb. 2 /PRNewswire/ -- Integrated Health Services, Inc. (OTC Bulletin Board: IHSV - news) today announced that IHS and many of its operating subsidiaries have filed voluntary petitions with the U.S. Bankruptcy Court for the District of Delaware to reorganize under Chapter 11 of the U.S. Bankruptcy Code in order to restructure the company's debt obligations. The company elected to seek court protection in order to facilitate its efforts to restructure its capital and lease obligations.
IHS expansion
leads to Chapter 11
Modern Healthcare February 7, 2000, Monday
The bankruptcy filing last week by one of the nation's largest post-acute-care companies was the sharpest nail yet in the coffin of diversification.Once a leading advocate of the one-stop-shop model for post-acute care, Integrated Health Services is now a leading example of aggressive expansion gone sour.
The Sparks, Md.-based company is the fourth publicly traded long-term-care firm in five months to seek protection from creditors under a Chapter 11 filing. All four were primarily skilled-nursing providers, but each also pursued several lines of business designed to complement its core operations.
And of the four, IHS may have been the most broadly diversified.
"With nursing homes, home care, home oxygen, rehab hospitals and the rest, (IHS) tried to put together a post-acute network of services," said Debra Lawson, a New York-based analyst for Salomon Smith Barney. "That sounds good and looks good on paper but hasn't worked out in practice."
The company operates 400 nursing homes, 17 specialty hospitals and more than 10,000 contracts to provide physical, infusion, oxygen and other therapies to long-term-care patients. It sold its home nursing division in 1999 after changes in the Medicare payment system made that business unprofitable for the company.
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Like Vencor, Sun Healthcare Group and Mariner Post-Acute Network - each of which filed for bankruptcy in recent months-IHS blamed its financial failings on Medicare payment cuts to skilled-nursing facilities."There are a lot of similarities among the four. They all had an operating structure that took advantage of the old environment and then the government changed the rules," said A.J. Rice, a New York-based analyst for Merrill Lynch & Co.
--------------------------------
In its voluntary bankruptcy petition, IHS said it had $3.6 billion in assets and $4.1 billion in liabilities.Analysts point out that the company's rapid expansion before the implementation of the new Medicare payment system for skilled-nursing facilities resulted in a huge debt load. With reduced cash flow, servicing that debt became all but impossible.
Despite its downward spiral, the company apparently went to great lengths to entice its chairman, chief executive officer and president, Robert Elkins, M.D., to stay at its helm. As recently as March 1999 the company lent him $11.5 million to "assist the company in retaining Dr. Elkins on a long-term basis in light of the significantly reduced stock price and loss of equity incentives," according to company filings. That sum brought loans outstanding to Elkins to $37.3 million.
As of the end of 1998 the company also had contributed a total of $18.1 million to Elkins' retirement trust.
Elkins co-founded the company in 1986, after spending four years as a practicing physician and six years as vice president and co-founder of another long-term-care company.
In a written statement, Elkins cast the bankruptcy as a positive move in light of dire circumstances. "The dramatic impact of the implementation of the 1997 Balanced Budget Act on our revenue and cash flow severely impacted the company's ability to service our current capital structure," he said. "We believe we are taking the appropriate steps to assure that we emerge from the reorganization process with a sound capital structure."
-------------------------
The company's largest unsecured creditor was HCFA, which it owes $155 million under a settlement agreement reached when IHS bought into the home health business in 1996.
Md. may lose IHS state loan
Baltimore Business Journal February 11, 2000
If Integrated Health Services Inc. misses employment targets stipulated by a $2.5 million state loan, Maryland officials admit they are hogtied when it comes to recouping taxpayer money.In December 1996, the state shelled out millions to keep the long-term care company headquartered in Baltimore County. The loan turns into a grant if IHS (www.ihs-inc.com) employs 1,000 people at its new Sparks headquarters by Dec. 31, 2000 and maintains that number through 2001.
But the company's Feb. 2 chapter 11 bankruptcy filing calls into question what happens to the taxpayer's investment State officials will have trouble demanding payment because Maryland is fisted as an unsecured creditor - bankruptcy court's equivalent to standing at the end of a school lunch line on pizza day.
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In 1996, IHS stock was a favorite among Wall Street investors. The company was growing and fueling expansion by taking on enormous amounts of debt to acquire more than 1,700 nursing homes nationwide. But changes in Medicare funding, caused by the Balanced Budget Act of 1997, cut the amount of money IHS was being paid and severely hurt the company's ability to pay down its debt. In 1999, IHS had more than $3 billion worth of debt and a stock price that plummeted from the $20 per share range in January to below $1 by the end of the year.When IHS finished moving to Sparks, the company had 900 employees working at the new headquarters. If IHS does not comply with the loan terms, West said the company will be required to pay back the money borrowed, at five percent interest over 10 years. Because IHS has sought court protection from creditors through its bankruptcy filing, it remains unclear what if anything, the state could do to force IHS to make any such loan payments.
Integrated Health Services is Largest
Healthcare Bankruptcy in 2000: Largest Bond Claims Available at
BankruptcyData.com
Business Wire March 13, 2000, Monday
BankruptcyData.Com (www.bankruptcydata.com), an Internet site providing in-depth information on major bankruptcies, announced that the lists of largest bond clai