UPS and DOWNS at the TOP

Dec 1, 2000 12:00 PM, HOMECARE STAFF

A Look at the Fortunes of the HME Industry's Leading Providers

FOR MORE THAN 10 YEARS, HomeCare magazine has compiled its annual Top Providers list. And over the years, that list has gone through many changes as companies have been acquired, merged - or gone bankrupt.

The list, indeed, mirrors the fortunes of the home medical equipment industry itself. It has gotten smaller as tough times have taken their casualties, even as they made other businesses grow stronger.

This year, however, we have made an important change. To better reflect the business world, our compilation now includes separate rankings for private firms and public companies. And as always, we share a few stories about what made this last year a success for some of these industry leaders.

Below is a list of the Top Private Companies of 2000. Following you will find more information on a select few -- and a list of the Top Public Companies of 2000.

Top Private HME Companies of 2000:

1. Maxim Healthcare, Columbia Md.

2. Banner Health System, Fargo, N.D.

3. Spectracare, Louisville, Ky.

4. Binson's Hospital Supplies, Center Line, Mich.

5. Sentara Home Care Services, Chesapeake, Va.

6. MedEquip, University of Michigan Health System, Ann Arbor, Mich.

7. Methodist HealthCare, Memphis Tenn.

8. Norco, Boise, Idaho

9. Health Care Partners, Louisville, Ky.

10. Millennium Home Care, Livingston, N.J.

11. Super Care, City of Industry, Calif.

12. John Davis Co., Sacramento, Calif.

13. All-Med Services of Florida, Miami Lakes, Fla.

14. Clinical Specialties, Broadview Heights, Ohio

15. Ultra Care, Chicago

16. Dependicare, Broadview, Ill.

17. Falls Medical Services, Cuyahoga Falls, Ohio

18. Medical West Healthcare Center, St. Louis

19. Home Medical, Medford, Ore.

20. Pulmocare Medical Supply, Champaign, Ill.

21. Oxy+Plus, Duluth, Ga.

22. Associated Healthcare Systems, Buffalo, N.Y.

23. Ascentra, Las Vegas

---------------

#2 Banner Health System

Showing Employees the Ways

Banner Health System spans 16 states - from Alaska to Nebraska - but its owners say the company's ability to "leverage the system" is its greatest strength. It has also contributed to a 38 percent increase in revenue in the last year.

Whenever possible, the company's goal is to spread its "systems" thinking throughout the organization with only minor adaptations to adjust for each branch's size and geography. In the last year, for example, Banner has launched what it calls its HME Employee Competency Program. The brainchild of the Learning and Development committee, the curriculum is designed to help managers across the Fargo, N.D.-based company train new employees as quickly and efficiently as possible.

The committee developed an adaptable curriculum with 17 modules designed to teach new employees about various aspects of home medical equipment according to their job descriptions and responsibilities. These modules are divided into three levels of complexity. The first level of "core" modules focuses on information all employees must know, such as medical documentation, software system use, infection control, safety, compliance and customer service. The intermediate and advanced levels are more in-depth and pertain to employees who need greater expertise in HME.

Each training module is followed by testing to assess employee competency. The ECP can also be used for retraining and continuing education of current staff.

And it has worked. Not only has it helped the company minimize staff turnover and meet the needs of "ever-changing and increasing work-force demands," it also has helped 70 percent of the company's branches earn an average score of 92-plus on their Joint Commission on Accreditation of Healthcare Organizations surveys.

After all, say Banner's owners, "we know that well-trained employees do not leave the work force but continue to provide good service and promote our company in a positive manner."

#5 Sentara Home Care Services

More and Less Make Success

Sentara Home Care Services experienced a number of significant changes during the past year - all of which contributed to an increase in gross revenue during fiscal year 1999 of 52 percent over the previous year. And according to Ray Darcey, vice president, this performance was made possible by a careful balance of consolidation and expansion.

The Chesapeake, Va.-based company underwent a physical transformation by bringing three businesses - home care, pharmacy and home medical equipment - under one roof. The goal: centralize and streamline administrative functions such as intake, billing, medical records and payroll. The company also underwent an operational transformation by computerizing data intake and entry. By automating this process, the company reports, it realized higher operational and staffing efficiencies.

Other cost-cutting measures included obtaining prior insurance authorizations for all services and exiting an unprofitable Medicaid Personal Care business as well as subcontractor arrangements outside the company's normal service area.

"The whole year was dedicated to improving the bottom line through the realization of operating efficiencies while steadily growing the business through sales and community events," says Darcey.

On the expansion side, he says, the company grew revenue by acquiring two branches in the last 12 months. It also focused on increasing its service area, while accommodating non-Sentara hospitals, by growing business at a branch it opened in Suffolk, Va., at the end of 1998.

Sentara pursued more infusion therapy business by broadening its service area. "Through intensive sales efforts and the collaboration of a highly specialized team of IV nurses," Darcey says, "we were able to penetrate some previously nonreferring physician offices and now are the preferred provider for one of our competing physician practice groups."

#9 Health Care Partners

Winning the Survivor Game

Led by president and chief executive officer Eric S. Harter, Health Care Partners has worked hard to be a winner. The Louisville, Ky.-based home medical equipment and respiratory therapy provider has survived the demise of its parent company, Homecare and Hospital Management of Louisville, and 21 sister companies and barely escaped losing its assets at auction.

But after a management buyout in February 1999 and subsequent moves to strengthen business operations, the company has been on a steady upward swing, growing an amazing 172 percent from $12.5 million in gross revenue last year to $21.5 million in fiscal 2000.

Jeffrey S. Edelson, vice president of operations, credits his company's strong performance to changes that have taken place since the buyout. The company has opened a new retail showroom, set up incentives to reward employees for results in monthly top-line revenue and bottom-line profitability, and established a sales and marketing team to pursue a broader field of referral sources.

But perhaps the most significant development has been the company's recent acquisition of All-Care Medical Supply in Beckley, W.Va. Edelson says it is just the beginning: Health Care Partners plans to continue expanding by acquisition and by entering into joint ventures with area hospitals.

The company's turnaround has not gone unnoticed. Harter this year received the Ernst & Young Entrepreneur of the Year Award and, along with his company, the 2000 Blue Chip Enterprise Award presented by MassMutual insurance company and the U.S. Chamber of Commerce. Health Care Partners also received the Greater Louisville Metro Chamber of Commerce Business/Family Partnership silver designation for its "friendly work/family life policies and practices" and was named one of the 50 fastest-growing Greater Louisville privately held companies by Business First newspaper.

"We're getting recognition in a time when our industry has been depressed, which is a nice example of teamwork," Edelson says.

#13 All-Med Services of Florida

Strength in Numbers

With its focus on serving the ever-changing managed care industry, All-Med Services of Florida has had quite a ride since it opened in 1995. But that has not stopped the company from becoming a leading provider of home care in its state. The proof is in the company's growth of just the last year.

Guided by president Raul Rodriguez, the company has grown so rapidly that it acquired three new buildings to house its growing staff, which has increased 25 percent in the last year alone. Headquarters for the Miami Lakes-based company now resides in a 40,000-square-foot facility equipped with all the latest technology.

When asked how his company has sustained such growth, Rodriguez says it's because his executive team "promotes teamwork among managers and the employees as a whole, actually sitting down and listening to the views of each department."

To demonstrate how serious it is about growth and teamwork, All-Med invested in a custom-designed employee-training center in its new headquarters. The center now hosts safety awareness seminars, employee skills assessment training and Joint Commission on Accreditation of Healthcare Organizations updates.

"At the end of the day, it's all about the delivery of quality health care. So we have re-evaluated the training programs we offer to ensure that we always reach the highest [performance] levels," says Rodriguez, adding that this has a direct impact on revenue growth.

One way in which this has played out, he continues, is in the quality of service All-Med offers managed care organizations and their patients. "We are able to provide managed care companies with a service and dialogue about patient care - and establish goals and objectives with them so they have the highest level of confidence in us," Rodriguez says.

Of course, the company sets high performance goals for itself, as well. Looking forward to 2001, Rodriguez says the company plans to reduce paperwork by completely automating its intake process.

"All-Med stands poised for taking its place among the leaders in providing innovative, service-oriented patient care in a functional, cost-effective, data-driven environment," he declares.

#16 Dependicare

Striving for Perfection

The key to success at Broadview, Ill.-based Dependicare is never resting on laurels.

"Our customers are extraordinarily demanding," says Jill Lazar, director of marketing for the home medical and respiratory equipment company, "and if we fail, there's another company lined up to [serve them]."

Ever mindful of that, Dependicare this year moved to nip in the bud what could have been a problem. Its patient roster was growing rapidly, and the company needed to find an efficient way to manage that growth and continue to provide what Lazar calls the "nearly perfect service" required in her market.

"We have very big growth here. ... We were getting to the point where we were having difficulty managing it," says Lazar.

Because 40 percent of Dependicare's delivery is same-day service, the company installed two-way message systems in all its delivery trucks so drivers could be reached quickly with information about new patients. It added more trucks to its fleet and outfitted each one with extra equipment "so everyone is equipped to do add-ons," says Lazar. That eliminated wasted time making trips back to headquarters to pick up equipment, she says; now, drivers can usually stay in the field all day.

In addition, the company's entry order system is now tied to the message system so "when [drivers] finish a stop, we know exactly where they are," Lazar says. That allows customer service representatives to give customers much more accurate estimated times of arrival, she adds.

Finally, the company stepped up employee training to help reduce its days sales outstanding. "You can't go through growth and bring in all the capital equipment without bringing in the dollars faster," Lazar explains.

Has all this worked? Lazar says there's one way to find out, and that's by paying keen attention to customer comments and how they compare with comments last year when Dependicare had fewer patients. "I'm very pleased to say our customer service is status quo," she says, and you can almost hear the smile in her voice.

#19 Home Medical

Taking Charge

This past year was an exciting one for Medford, Ore.-based Home Medical. The company's general manager, her husband and a private investor purchased the company - and then instituted a number of changes, particularly with regard to Home Medical's internal systems and compliance efforts.

Through its newly created Continuous Quality Improvement Committee, for example, the company has asked members of the communities it serves for feedback on a variety of Home Medical functions. Feedback is already being used to streamline operations, eliminate or redesign weak systems and programs, and develop new programs and systems. "This process has helped us understand our weaknesses and also highlighted our strengths," says Janis Monson, president and chief executive officer. "The time taken to build and develop this maturity has given our management team an opportunity to reflect on our accomplishments and decide on future growth."

On the compliance front, Home Medical realized that internal education and development were sorely lacking, so the management team sent employees to industry workshops, in-services and technical schools to bolster their education. It even began a process for educating its referral sources.

Also, the company's marketing department has established a team of six employees to plan company involvement in everything from referral-source education to trade shows and advertising campaigns. This is especially critical given that Home Medical's five locations rely on retail sales for a full 90 percent of their revenue.

All these changes are already having an impact on the company and are in part responsible for its 16 percent revenue increase in the last year. But while it's still too soon to tell just how great of an impact the changes will have on the company, Home Medical officials already thank their employees.

"This growth and change would not have been possible," says Monson, "without the dedication of the entire group of extraordinary people that make up the Home Medical team."

--------------

Top Public HME Companies of 2000:

1. Apria Healthcare Group, Costa Mesa, Calif.

2. Lincare, Clearwater, Fla.

3. Matria Healthcare, Marietta, Ga.

4. Option Care, Bannockburn, Ill.

5. In Home Health, Minnetonka, Minn.

6. National Home Health Care, Scarsdale, N.Y.

7. Interwest Home Medical, Salt Lake City

THE HOME HEALTH CARE INDUSTRY SAW a shake-up among its major public companies this year, as some providers from HomeCare's 1999 Top Providers list became victims of hard financial losses or bankruptcy. Here's what happened to these industry stalwarts, beginning with those companies that recorded financial losses in 2000:

AccuHealth

Latest Loss/Earnings: Net loss of $1.3 million in the first quarter of fiscal 2001 ended June 30

AccuHealth, Yonkers, N.Y., recorded net sales revenue of $33 million in fiscal 2000, ended March 31, an approximate 13 percent drop from the $38 million in net sales it posted in fiscal 1999. The company also posted a net loss of $8.2 million, or $1.70 a share, compared with a net loss of $5.5 million, or $1.22 a share, in 1999.

According to Glenn Davis, president and chief executive officer, the company has initiated a major restructuring in the last year to turn its fortunes around. It has abandoned its attempt to be a "one-stop shop" by eliminating its durable medical equipment and supplies, rehab, institutional and oral medication business segments so that it can focus exclusively on infusion therapy and supplemental staffing.

Davis also reports that the company has eliminated any therapies which were low margin or unprofitable, establishing a minimum baseline of 25 percent gross margin on infusion therapy cases. Finally, the company officials report that they have severed relationships with payers that refuse to honor agreed-to payment terms, which has improved its days sales outstanding.

American HomePatient

Latest Loss/Earnings: Net loss of $19.8 million for the first nine months of fiscal 2000

American HomePatient leveraged its $403.9 million 1998 revenue into fifth place on HomeCare's 1999 Top Providers list. For fiscal year 1999, however, revenue had dropped to $357.6 million - and the Brentwood, Tenn.-based company recorded a loss of $99.9 million.

To date, the tide is not turning. For the nine months of fiscal 2000 ended Sept. 30, the company recorded revenue of $270.5 million, compared with $271 million for the same period in 1999. And it posted a net loss of $19.8 million, compared with a net loss of $15.6 million for the same period last year.

Officials attribute the loss to lingering aftereffects of cuts in oxygen reimbursement (25 percent in 1998 and 5 percent in 1999), to an increase in bad debt expense because of problems at four of the company's billing centers, to disruption in billing and collection activities as the company implemented a compliance program and standardized reimbursement practices and finally to declining revenue in several of the company's operating units.

In addition, AHP has dissolved two joint-venture partnerships - and might dissolve more, officials say - and early in the year was in default under several of its financial covenants. While it was successful in modifying its financial agreements, AHP reported debt of $307.5 million in May of this year and said it likely would not be in compliance with the new agreements as of Jan. 31, 2001.

Gentiva Health Services

Latest Loss/Earnings: Net loss of $130.1 million for the first nine months of fiscal 2000

Gentiva Health Services of Melville, N.Y., is a former subsidiary of Olsten Health Services, which was No.1 on the Top Providers list in 1999 with revenue of $4.6 billion. On its own, Gentiva reported a net loss for fiscal 1999 of $15.1 million. But while that loss is significant, it pales in comparison with the net loss of $101.5 million that Gentiva posted as a subsidiary of Olsten in fiscal 1998. (Gentiva split from its parent company in March, 2000).

Officials said cash flow has been a problem that the company continues to address. They added that realigning the company's business units has helped improve operating efficiencies.

Gentiva is attemtping to get back in the black and has seen some improvement in revenue, increasing from $1.3 billion in 1998 to $1.5 billion in 1999. During the first nine months of this year, however, the company recorded a net loss of $130.1 million, compared with a net loss of just $12.9 million for the same period in 1999.

Infu-Tech

Latest Loss/Earnings: Net loss of $3.4 million for fiscal 2000 ended June 30

Getting its SmartMeds.com initiative up and running took its toll on Englewood Cliffs, N.J.-based Infu-Tech this year. Gross revenue for the year ended June 30, 2000, was $18.7 million, down from $25.5 million last year. Net loss for the year was $3.4 million, or $1.01 a share.

The company attributed the lower revenue to its decision to reduce its traditional infusion therapy and contract services and also to pursue its specialty pharmaceuticals business, SmartMeds.com. While the total expenses incurred were not a major component of the earnings results, much of the company's resources - including management, sales and clinical staff efforts - were diverted to the development of the wireless strategy, officials said.

Jack Rosen, chairman and chief executive officer, noted that the results were also affected by the company's "conservative evaluation" of its ability to collect sums owed by managed care organizations. The company is banking on wireless technology to reverse its downward trend; wireless strategy, Rosen said, offers new revenue opportunities through partnerships with managed care and wireless carriers.

Tender Loving Care Health Care Services

Latest Loss/Earnings: Net loss of $9.5 million for the six-month period ending Aug. 31

Tender Loving Care Health Care Services is a spinoff company of Lake Success, N.Y.-based Staff Builders, which in 1999 was No. 5 on the Top Providers list with $519.7 million in annual revenue. Tender Loving Care reported a net loss for fiscal 2000 of $15 million, compared with a net loss of $73.1 million for fiscal 1999. In addition, the company's revenue fell from $312.5 million in 1999 to $255.7 million in 2000.

Tender Loving Care officials attributed the company's financial troubles to the closure of 60 locations. The company also suffered setbacks from Medicaid reimbursement cuts and cuts in local government programs.

The company's financial woes have continued during fiscal 2001. For the six-month period ending Aug. 31, 2000, the company posted a net loss of $9.5 million, compared with a net loss of $7 million for the same period last year. Tender Loving Care's revenue for the six-month period of fiscal 2001 totaled $112.9 million, a 16.9 percent decline compared with $135.8 million for the same period a year ago.

Transworld Healthcare of New York

Latest Loss/Earnings: Net loss of $7.1 million for the first nine months of fiscal 2000 ended June 30

Transworld Healthcare of New York, which was No. 9 on last year's list, posted a loss for fiscal 1999 of $7.3 million. Its revenue also declined, from $155.3 million in 1998 to $154.7 million in 1999. In addition, the company changed its fiscal year so that the fiscal 1999 results were for an 11-month period, and it realigned the business, exiting the wound care and orthotic product lines and selling its radiation therapy division.

The company's fortunes have not yet turned; in the first nine months of fiscal 2000 ended June 30, its net loss rose 31 percent to $7.1 million, while revenue fell 19 percent to $94.9 million compared with the same period last year. Officials attributed the results to a change in accounting for subsidiaries in the United Kingdom, lower margins and a $5.1 million legal settlement charge.

-----------------

SADLY FOR SOME OF THE industry's key players, big losses in last year or so have translated into bankruptcy filings. Of note are the following public companies:

Coram Healthcare

Latest Loss/Earnings: Net loss of $4 million for the second quarter of fiscal 2000 ending June 30

Coram Healthcare in Denver, which ranked No. 4 in our 1999 list with $526.5 million in 1998 revenue, filed for Chapter 11 bankruptcy protection in August of this year. This after recording a $114.8 million loss on revenue of $521.2 million in fiscal 1999. The company's financial woes stemmed from its contract dispute with Hartford, Conn.-based Aetna U.S. Healthcare, which was finally settled in June. But by that time, Coram had terminated nonessential consulting agreements, eliminated 113 positions, added high-level personnel - and watched its stock fall in one year from a high of $2.88 a share to a low of 38 cents. Two of its Resource Networks subsidiaries also dissolved under bankruptcy.

The company's financial status is improving, albeit slowly. It posted a net loss of $4 million for the second quarter of fiscal 2000 ending June 30 - a vast improvement over the $38 million loss recorded for the same quarter in 1999.

The company, which in September won a $40 million debtor-in-possession credit facility and which has $252 million in debt due or redeemable in May, hopes to emerge from bankruptcy this month as a private firm. But a recently formed equity committee representing shareholders is fighting the reorganization plan and privatization of the company.

Home Health Corp. of America

Latest Loss/Earnings: Approximate loss of $66 million for the first two quarters of fiscal 1999

Home Health Corp. of America, King of Prussia, Pa., filed for Chapter 11 bankruptcy protection in February of 1999 after cutting personnel by 10 percent, defaulting on a $4.4 million loan and failing to renegotiate $85 million in long-term debt financing.

The company, No. 13 on last year's list with $118 million in revenue, tied its problems to Medicare cuts and a failure of managed care companies to pay bills. In the years before filing for bankruptcy, it had also borrowed heavily to finance acquisitions that weren't as profitable as expected because of Medicare cutbacks. In the first two fiscal quarters of 1999, the company lost roughly $66 million.

Since then, HHCA has a new management team, led by David Geller, president and CEO. The company, which has 20 locations in the Mid-Atlantic states, Florida and New England and serves more than 5,000 patients, has refocused on its core businesses - home health nursing, pediatric hourly nursing services and respiratory care.

According to officials, the company has also invested in an in-house computer system designed to manage reimbursement difficulties posed by Medicare's new prospective payment system.

Integrated Health Services

Latest Loss/Earnings: Net loss of $45.2 million in the first six months of 2000

Integrated Health Services, Sparks, Md., filed for Chapter 11 bankruptcy protection in February of 2000 after losing a whopping $1.8 billion in the third quarter of 1999 and recording assets of $3.6 billion and liabilities of $4.1 billion. Net loss for fiscal 1999 was $2.2 billion.

The company's downward spiral appeared to gain momentum in the fall of 1999 when it took subsidiary RoTech off the market after failing to sell it and elected not to make the interest payment on $143.8 million in convertible senior subordinated notes. Also, in October 1999, two members of the board resigned.

Since filing for Chapter 11, the company, which ranked No. 2 on last year's list with revenue of nearly $3 billion, has reorganized. Joseph A. Bondi of the turnaround consulting firm of Alvarez & Marsal was named chief restructuring officer, replacing Robert N. Elkins, who was former chairman, chief executive officer and president as well as a company founder.