Health-service companies are thriving through lower costs


Companies that offer health-care services and products more cheaply than hospitals are the fastest-growing segment of the health-care market, analysts say.

Encouraged by employers and insurance companies eager to cut costs, those companies also are responsible for increasingly specialized alternatives to hospitals.

An estimated 100 health-care companies went public last year in the competition to provide lower-cost care, said William L. Paternotte, managing director of research for Alex. Brown & Sons, which devotes 20 percent of its analysts to the burgeoning field.

"We've had remarkable growth," he said, attributing it to pressure from employers who pay the health-care tab.

Most of the growth is in medium-sized companies that offer lower-cost alternatives such as free-standing surgery centers, mail-order prescription drugs and even health maintenance organizations that cover podiatric care. The move away from hospital-based care also has given rise to companies that offer such things as respiratory therapy or rehabilitation at home or in a hotel-like setting.

Health care costs account for 12 percent to 14 percent of the gross national product -- more than double the level of a decade ago -- with little appreciable increase in the quality or availability of care. The result is a tremendous demand for alternatives that offer the same or better care at lower cost.

For instance, NovaCare Inc. of Valley Forge, Pa., began in 1985 as a contract provider of rehabilitation care to nursing homes. It allowed the nursing homes to satisfy federal requirements for rehabilitative services without hiring a full-time staff.

NovaCare is now the largest such contractor in the country, with agreements in 35 states. It also began to buy its own facilities and nowowns seven rehabilitation centers. It projects 15 percent growth annually over the next five years.

The largest independent company providing alternatives to hospital care, Critical Care America Inc., began in 1981 with a specialty of in-home infusion treatments -- the administering of nutrients through feeding tubes. It is now examining a spectrum of diseases that could be treated in the home or in outpatient centers.

"We need to redefine how we treat illness in this country," Patrick S. Smith, Critical Care's president, said in presenting his company's strategy yesterday at Alex. Brown's 17th annual health-care conference at the Stouffer Harborplace Hotel.

The Nashua, N.H.,-based company reported $233 million in revenue last year and has a goal for 1996 of $1.1 billion, Mr. Smith said. The company is building surgery centers to compete with hospitals.

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