Integrated Health Services' revenues leap 65% It agrees to buy home-care firm


Integrated Health Services of Owings Mills announced yesterday revenues of $1.2 billion for the year -- an increase of 65 percent over 1994 -- and an agreement to buy First American Health Care of Brunswick, Ga., positioning the company for a greater emphasis on home health care.

Despite the jump in revenues, Integrated reported a loss, after accounting changes, of $27 million, or $1.26 a share. Before accounting changes and other extraordinary charges, earnings

were $2.15 a share, compared with $1.72 in 1994.

Terms were not disclosed in the acquisition of First American, the largest privately held provider of home health-care services in the country with more than 440 agencies in 23 states and more than 9 million patient visits annually. First American filed for bankruptcy protection last week after its owners were convicted of Medicare fraud.

First American had told its employees last week that Integrated was negotiating to buy the company.

The purchase of First American, with yearly revenues of about $650 million, represents "a major push in home health care" for Integrated, said Joel M. Ray, an analyst with Wheat First Butcher Singer in Richmond.

Since First American is a private company for which little financial information is available, it is hard to assess the impact of the acquisition, said John R. Runningen, an analyst with the Robinson-Humphrey Co. in Atlanta. He said home health care is generally characterized by "skinny margins."

The acquisition and a move into capitated contracts -- in which Integrated agrees to provide care for a set fee per person, regardless of how much care is used -- mean "the level of certainty is reduced," Mr. Ray said.

Mr. Ray said he was maintain ing a "buy" recommendation on the stock, as was Brace C. Brooks, an analyst at Chapman Co. in Baltimore.

"Despite the uncertainty surrounding IHS, at a multiple of about 10 times earnings it still represents an attractive value," Mr. Brooks said.

The stock closed yesterday at $22.125, up 12.5 cents.

Integrated operates a range of health services at 600 locations in 40 states, including home care, rehabilitation, respiratory therapy, hospice care and "subacute" care.

The earnings figures matched those signaled by Integrated three weeks ago, when it announced the accounting change and cancellation of two contracts, but were below earlier analysts' estimates.

"At IHS we have met or exceeded analysts' earnings estimates for 19 consecutive quarters since we became a public company," said Dr. Robert N. Elkins, chairman and chief executive officer.

"Although we are disappointed that for the first time earnings are below expectations, we are excited about the continued growth of the company and the execution of our strategy of building post-acute care networks capable of partnering with managed care in sharing the risk."

Mr. Runningen, who downgraded his recommendation on IHS from "buy" to "long-term buy" when IHS downgraded its earnings estimates three weeks ago, said the stock's price has not moved lately because of uncertainty throughout the sector, with lack of agreement in Congress maintaining uncertainty as to reimbursement levels.

"The bottom line is: Investors are reluctant to place their bets until these uncertainties subside," he said.

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