Sparks-based Integrated Health Services, in bankruptcy reorganization for more than two years, is receiving bids on its nursing homes and other assets, several analysts and other industry sources said yesterday.
A company spokesman, Robert Mead, said the company has not made a decision to sell its assets rather than try to emerge from bankruptcy as an operating company. The company has an obligation to "examine all the alternatives," he said.
There is speculation in the industry that Kindred Healthcare Inc., of Louisville, Ky., is a likely buyer of IHS' nursing homes. Jerry L. Doctrow, a health analyst at Legg Mason Wood Walker in Baltimore, noted yesterday that Kindred has changed its credit agreements to allow acquisitions of up to $130 million, and that "likely acquisition targets, in our view, include the nursing home operations of Integrated Health Services."
It is expected to take months to review bids, make decisions and get approval from the bankruptcy court, sources said.
"It's too uncertain to name any one company as being close to having a deal," said Thomas H. Shinkle, senior vice president at Imperial Capital LLC in Beverly Hills, Calif., who follows Kindred.
However, Shinkle said, the acquisition would make sense for Kindred, as companies look for markets where they can own a concentration of facilities. "Kindred's and Integrated's map of buildings fall on top of each other better than anyone else's," Shinkle said.
Glenn B. Rice, an attorney for the creditors' committee in the IHS bankruptcy proceedings, said he hoped the company would file final plans with the U.S. Bankruptcy Court in Delaware by summer. A trade publication, McKnight's Long-Term Care News, reported last month that IHS had said it would file by June. Mead said he could not confirm that but the target date "doesn't sound unreasonable."
Mead and Rice would neither confirm nor deny the bidding process.
Some in the industry expect Integrated to sell off its parts rather than come out of bankruptcy as a reorganized company. "They're behaving as if they're in Chapter 7," the part of the bankruptcy code that covers liquidation, said Marcy Chong, a research analyst for the Service Employees International Union, which represents thousands of nursing home workers. "Everything's for sale."
Last month, Integrated spun off its RoTech division, which provides home respiratory services and durable medical equipment. RoTech emerged from bankruptcy separately. According to Shinkle, Integrated's major creditors became RoTech's primary owners. It has also sold some smaller divisions.
IHS had a rapid rise and even more rapid fall. It was a pioneer in "sub-acute" care, adding extra staff to nursing homes to provide rehabilitation for people coming out of hospitals. Its goal was to reduce costs by providing care in lower-cost settings. From a start-up, IHS grew to a company with facilities in 47 states and $3 billion a year in revenue.
In 1998, however, the federal government cut reimbursement rates in its Medicare program, on which Integrated depended for a third of its revenue.
Integrated filed for bankruptcy reorganization in February 2000, continuing to operate as it developed reorganization plans. In January, 2001, the company's founder, Dr. Robert N. Elkins, left with a severance package valued at $55 million, largely in forgiveness of loans used to buy company stock which had become nearly worthless. A turnaround specialist, Joseph A. Bondi, took over.
Four of the six other largest nursing home chains also filed in 1999 or 2000. All had grown rapidly by acquisition, leaving them with heavy debt loads they couldn't service with the lower reimbursement. "The feds cut the rate, and they were levered to the gills," Doctrow said.
Since then, Medicare reimbursements have been bumped back up, and several of the chains have emerged from bankruptcy.
Integrated currently operates 300 homes and has 500 headquarters employees, according to Mead.