With acquisition of Meridian, Genesis Health nears goal of regional domination

October 03, 1993|By Patricia Meisol | Patricia Meisol,Staff Writer

KENNETT SQUARE, Pa. -- In the same way that it retrofitted an old furniture store in this small town south of Philadelphia, Genesis Health Ventures Inc. is trying to modernize the nation's chipped and peeling health-care system.

The fast-growing company -- which is buying Maryland's largest nursing-home chain -- has acquired drug and other medical businesses, melding them and nursing homes into geriatric health-care networks. Its plan: to dominate health care for the elderly in sections of Florida, New England, the Delaware Valley and the mid-Atlantic.

Genesis' $205 million purchase of Towson-based Meridian Healthcare nursing homes will make Maryland the company's biggest market and a showcase for its bold strategy.

That acquisition will double Genesis' annual revenue, to $400 million, making it the nation's sixth-largest publicly held nursing-home chain. And it ensures that little-known Genesis, which owns or manages 58 nursing homes and more than a dozen life-care commu nities, will be noticed alongside major players like Manor Care Inc. of Silver Spring.

So far, Wall Street has responded favorably to Genesis' plan. The dayafter the chairman and chief executive, Michael R. Walker, outlined to institutional investors in New York his strategy for buying Meridian Healthcare, the company's stock rose $1.25, to $17.25. It closed Friday at $19.25.

Mr. Walker and Richard R. Howard, Genesis' president, have worked together since the 1970s, building a pair of $100 million nursing-home chains that were swallowed by Beverly Enterprises and HCR Inc. Genesis offered the executives a chance to build for themselves what they had built for others, and their reputation helped the company borrow $32 million on its first day of operation.

In 1985, they set up shop in a quaint former furniture and dry goods store. As Genesis grew, they stayed close to home, remodeling and expanding the headquarters and sticking with the niche of providing health care to the elderly.

Mr. Walker, 45, still walks two blocks home for lunch, amid the falling leaves of a small-town main street. Inside the old facade, though, Genesis' operations are highly computerized and thoroughly modern, except for its constantly ringing phones -- Mr. Walker banned electronic voice mail because it was seen as impersonal.

From the beginning, the partners embarked on the strategy that sets them apart from competitors: buying up suppliers that eat away at nursing-home profit margins.

They developed a full range of health-care services for people ages 85 and older -- a group estimated at 2.5 million and growing -- rather than offering limited specialties like the subacute care provided by Integrated Health Services Inc. of Owings Mills.

And unlike Manor Care and others that bought drug companies, Genesis added such services only when they were near its nursing homes. Even then, the company planned to cut costs by managing care.

"If you own a pharmacy in Pennsylvania and a nursing home in North Carolina, you can't share information," Mr. Walker said. "But if I have a pharmacy, a physical therapist, a physician in the same place, guess what? They can all get together once a week to discuss the patient's health and get that person out of long-term care."

For example, in Maryland, where Genesis employs 700 people, the company added a physician-managed clinic in Salisbury in 1988.

Then it bought drug suppliers, which had profit margins of 10 percent to 15 percent, compared with 3 percent to 5 percent on nursing homes. In Maryland in the late 1980s, it bought two companies that repackaged and sold drugs worth $15 million annually and expanded them into full-service medical-supply companies. Those companies and others that were added later, based in Columbia under the name ASCO Healthcare Inc., now have sales of $80 million a year, 80 percent of it to non-Genesis customers. ASCO serves 25,000 people in nine states.

Mr. Walker, 45, built ASCO from Drug Lane Pharmacies Inc. and Accredited Surgical Companies Inc. And he broadened the product line to include computerized drug information management systems and contract therapy programs to nursing homes, chronic-care centers and corrections facilities.

"His idea was to expand the pharmacy services into other areas," said Marvin Freedenberg, who founded Drug Lane in 1964 and serves as president and chief executive officer of ASCO. The ASCO umbrella includes Baltimore-based Health Concepts and Services Inc., a nursing-home staff-training and service company acquired in June, and a home-health-care company in Linthicum.

This year, 34 percent of Genesis' revenue and 42 percent of its profits are expected to come from higher-margin specialty services like drugs and medical supplies, according to an analysis by Dillon, Read & Co. Inc., the investment house.

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