Dr. Robert N. Elkins moved boldly to build Integrated Health Services, the Sparks-based nursing home chain, in barely more than a decade.
Now, within a few days, Elkins will be officially leaving the company he founded, in return for a severance package valued at nearly $55 million. He could not be reached for comment.
From a start-up, IHS grew to a company with 1,500 nursing homes and other facilities in 47 states, and $3 billion a year in revenue.
Along the way, Elkins became known not only for his business strategy, but also for his lavish bonuses - $3.25 million in 1997 - and perks such as his corporate jet.
But the company's fortunes quickly went sour in 1998, as Medicare, on which it depended for a third of revenue, cut its payments.
Profitable in the second quarter of 1998, IHS lost $158 million in the third quarter. The stock plummeted from near $40 a share in 1998, shortly before the lower payments started, to a penny a share by the end of 1999. Early last year, the company filed for bankruptcy protection.
"It's safe to say Bob was a bit of an innovator, but it's safe to say that which he found successful was part of the problem," Paul Willgang said yesterday.
Willgang was president of the American Health Care Association, a nursing home trade association, for 15 years until he retired two years ago. He is a professor in the graduate division of business and management at the Johns Hopkins University.
What Elkins found successful was "subacute" care, more intensive services than a nursing home, but less intensive and less expensive than those of a hospital.
When Elkins created Integrated in 1986, he began by buying high-end nursing homes with a large percentage of private-pay patients, "but then the whole subacute thing hit him," said Stephen B. Monroe, editor of Senior Care Investor, an industry newsletter.
"He was definitely well-known in the industry, and also on Wall Street and in Washington," Monroe said. "He publicly pushed the concept of getting nursing homes out of the bowels of the health industry, by offering more services and not just taking care of people until they die."
As Medicare spending on subacute care grew - and IHS' revenue grew with it - the company began buying related businesses, companies that provided respiratory therapy, rehabilitation therapy and home health care.
IHS and other nursing home chains that were expanding rapidly were "leveraged up the gazoo," building up debt to finance their acquisitions, said Willgang. IHS' debt reached about $3 billion.
But the strategy seemed to be working.
Elkins, meanwhile was rewarded handsomely as IHS' revenues grew and its stock price soared. He was criticized by executive compensation specialists. "As a psychiatrist, he should be suffused with guilt," said one, Graef Crystal.
Heavily dependent on government payments, Elkins "became very attuned to the political environment," Willgang said. He gave $572,500 to the Democratic Party in the 1996 election cycle and was invited to three White House coffees with President Clinton.
As part of the Balanced Budget Act of 1997, Medicare put in a new payment system projected to save $9.2 billion over five years. Payments were not only lower, but the new prospective payment system (PPS) imposed per-case and per-day limits on charges.
The new system also hit hard at the related companies providing various types of therapy.
The highly leveraged, Medicare-dependent chains began a string of bankruptcy filings. Five of the seven largest chains went into court-supervised reorganization.
In July, Elkins and the company reached an agreement under which he would leave, but that didn't become effective until it was approved by the bankruptcy judge.
Monroe recalls seeing a newspaper ad for an auction of expensive wine by collectors, "and I said, `Oh, my God, there's Bob Elkins.' We made a joke in our newsletter: `Things are getting so bad Bob Elkins had to sell his wine cellar.' "