Md. firm cashes in on rising demand


September 08, 1993|By Patricia Meisol | Patricia Meisol,Staff Writer

FREDERICK -- It took a national health care crisis to jump-start HomeCall Inc., a tiny home health company that opened here 20 years ago as a specialty service to help older people with mundane tasks like window washing.

But take off it did. Several years after it branched out into medical services, the company is growing as escalating health care costs have led insurers to push for shorter hospital stays, more outpatient surgery and alternative care at the same time the elderly population is growing.

This year, HomeCall acquired offices in Baltimore and Anne Arundel County, bringing to 14 its locations in Maryland and Virginia and giving it statewide coverage. Sales grew 30 percent, to $12 million, for the year that ended March 31, compared with 12 percent in the home health care industry overall, and HomeCall recently won a license to operate in the District of Columbia. West Virginia is next.

"We were probably a little ahead of our time," said the president and chief executive officer, Artie R. Esworthy Jr., 43. Mr. Esworthy joined the company in 1976, two years after it was founded by Doris Hanson, a teacher and former executive director of the American Home Economics Association.

Ms. Hanson sold out to Mr. Esworthy and other directors in 1988, a year after she took the company public to finance a shift into skilled nursing, physical, occupational, and speech therapy, intravenous therapy and medical social work. Today, 65 percent of its home care is medical. HomeCall's ability to do the rest -- cook, clean, provide respite care, all its original niche -- distinguishes it from the growing number of hospital-linked home health services and the Visiting Nurses Association, the oldest home health care agency in the country.

Home health care was a $17 billion-plus industry last year.

"In general, the home care industry is growing because technology is allowing people to be taken care of in the home who used to require some sort of institutional care," said Neal C. Bradsher, a health care analyst at Alex. Brown & Sons. It is likely to continue to grow as an alternative to hospitals and other institutional care, he said.

"At the same time, the home care industry has grown in fits and starts," Mr. Bradsher said. The home infusion business, for instance, once one of the most rapidly growing segments of all health care, slowed due to a reimbursement squeeze in the past few years.

"What's happened is a lot of home therapies proved to be not all that difficult to do and there's a lot of competition," he said. Payers have gone after discounts, driving down high profit margins, a trend that is likely to continue, he said.

One reason for HomeCall's slow start was that doctors didn't have to worry about how patients fared after leaving the hospital jTC until technology and cost forced their patients home sooner, Mr. Esworthy said. "Now they are saying, 'We need to be thinking about how can we care for the person at home and begin to get them back on their feet.' "

Growth also is fueled by consumers. "People like privacy," Mr. Esworthy said. "The big thing is choice and convenience."

HomeCall branched off into maternal and infant care in 1991, and now serves a much younger population. It is counting on a continued boom in medical technology to feed that growth. "The equipment out there is making life a lot more simple," Mr. Esworthy said.

About 70 percent of its revenue comes from cost-based reimbursement programs such as Medicaid and Medicare, the federal health insurance programs. Another big client is M.D. IPA, the largest managed-care company in the state.

HomeCall's most formidable competitors are hospitals themselves, many of which have opened their own home health subsidiaries. The company now gets overflow from hospitals because demand is growing so fast, but in the long term it must overcome reluctance by doctors to bypass a service at the place where they have privileges.

One strategy is to build volume. In another, HomeCall is considering joint ventures with manufacturers of equipment and drugs to increase profits. Mr. Esworthy said the company is looking for profit margins of 1.5 percent to 1.75 percent, up from about 1 percent last year. He expects sales to approach $20 million in the next two years.

Also, HomeCall allows its nearly 700 employees to participate in a 401(k) plan to encourage work force stability and quality care. Most employees are permanent part-time.

The stock first sold in units of four shares for $1 in 1987. Subsequently, a 10-for-one reverse stock split raised the price to $2.50 a share. The stock closed yesterday at $1.3125. There are 3 million shares outstanding, and 35 percent of it is closely held.

Although it had early losses, HomeCall grew without incurring heavy debt. Maryland National Bank recently increased its line of credit by one third to $1.5 million, which HomeCall is using to expand and for acquisitions. Current liabilities are $2.1 million, including $780,000 from the credit line and $50,000 in long-term debt, on $1.1 million of equity.

Last year HomeCall had the fourth-highest revenues of home health care companies in the region, by its own estimate. But profits dropped 51 percent, to $113,000 for the year ended March 31 -- a drop the company attributed to costs of maintaining 14 offices.

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