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Integrated stock off 15% as CEO fears downturn Elkins says earnings may drop 10-25% due to federal budget cuts; He cites Medicare, Medicaid; Prediction depresses shares of other firms in long-term health care


In the first sign of real trouble for an industry star, the stock of Integrated Health Services Inc. plummeted 15 percent yesterday as Chairman and Chief Executive Officer Robert N. Elkins shocked analysts by warning that the company faces a drastic downturn in expected earnings next year and slower growth in the future.

His statements also scared investors in other long-term health businesses, contributing to a drop in the stock prices of companies such as Manor Care Inc. in Silver Spring.

Dr. Elkins told analysts that federal legislation curtailing Medicare and Medicaid spending would cut earnings-per-share by 10 to 25 percent in 1996, a spokeswoman for the Owings Mills-based company said.

"The other thing he said is that beyond 1996, the growth of the company could very well fall from the 25 percent range" of recent years "to somewhere in the neighborhood of 15 to 20 percent,"

said Robert M. Mains, an analyst with First Albany Corp.

Integrated, which specializes in lower-cost alternatives to hospital care, receives much of its revenue from Medicare and Medicaid, the giant federal health programs for the elderly, poor and disabled.

Although the spokeswoman said the company expects to rebound after 1996, the prospect of a disappointing year comes as a big surprise for a company used to continuous success.

Dr. Elkins rapidly built Integrated into the leader of the so-called sub-acute industry, pioneering the development of nursing home-based alternatives to hospital care.

Record earnings and revenues came to be expected every quarter as the company snapped up smaller businesses and took advantage of the federal government's willingness to pay for its services.

Although analysts believe the company is well-positioned to prosper in the long run, Integrated faces short-term difficulties, a first for the company.

The news from Dr. Elkins was bad enough to overshadow positive third-quarter financial results also announced yesterday: Net earnings before extraordinary items and one-time merger costs rose 39 percent to $14.3 million, or 56 cents per share.

Integrated's stock fell $4.125 to $22.75. Manor Care closed at $32.375, down 62.5 cents.

Dr. Elkins made his grim predictions even though President Clinton has vowed to veto the Republican spending bill in hopes of forcing GOP lawmakers to provide more funds for a variety of federal programs, including Medicare and Medicaid.

But even if Republicans are forced to compromise this fall, Congress is expected to cut spending.

The House version of the legislation, passed Thursday, would hold down Medicare and Medicaid spending by a total of $452 billion during the next seven years.

Integrated's spokeswoman said that Dr. Elkins believes the company will do well after 1996 because it is a "low-cost provider" that can profit from proposed new reimbursement formulas for Medicare and Medicaid.

But the spokeswoman said she didn't have enough information to elaborate on Dr. Elkins' comments concerning diminished growth rates after 1996.

Mr. Mains said he expects the stock price will recover somewhat. But he warned that a lot of analysts would lower their estimates for the company.

He praised Dr. Elkins for his "candor," for saying that because of federal legislation "we as an industry are going to be hurt, and there's no sense denying that."

Revenue for the third quarter, which ended Sept. 30, was $299.5 million, a 62 percent increase over the same period last year. And the company continues to expand, having completed in August the acquisition of IntegraCare Inc., a company that is developing an integrated network of rehabilitation services, home-health care and doctors' practices.

Integrated operates 223 facilities, with 28,000 beds, in 30 states.

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