Home nursing unit to be sold Integrated Health says Medicare squeeze jeopardizes viability

$200 million charge

Health care

October 31, 1998|By M. William Salganik | M. William Salganik,SUN STAFF

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.

Treating home health as a discontinued operation and excluding the charge, Integrated reported earnings of $42.8 million in the quarter, or 77 cents per diluted share, meeting analysts' expectations. In the third quarter of 1997, earnings exclusive of a one-time charge were $20.9 million, or 64 cents a share.

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.

Investors approved the company's moves, sending Integrated's shares up 8.4 percent, or $1.25, a share to $16.1875.

"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.

Last year Integrated's home health business accounted for an estimated quarter of its revenue, but that has fallen as Integrated has acquired other businesses.

Mains, who had downgraded Integrated from "buy" to "market underperform" Oct. 19, upgraded it again yesterday, to "market perform." Hindelong said Integrated's departure from home health had been expected. "The announcement just formalizes what everyone thought was inevitable," he said.

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."

He said the one-time charge of $204.9 million includes a write-down of home nursing businesses and expected operating losses until the unit can be sold.

Hindelong said the new earnings targets are "believable and achievable, and if they achieve them, the stock is cheap at current levels."

Excluding home nursing, revenue in the third quarter was $752.4 million, more than double the $344.8 million in the year-earlier quarter. The growth reflects acquisitions last year of RoTech Medical Corp., which offers home respiratory services and durable medical equipment, and nursing homes and other facilities that had been owned by Horizon/CMS Healthcare.

Pub Date: 10/31/98

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