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Beverly's long-term recuperation.

Net Income Is Up As A Fort Smith Company Continues Its Comeback

When Stephens Inc. analyst Ginanne Long talks about Beverly Enterprises Inc. of Fort Smith and its chairman, David Banks, she's careful about what she says.

That's not just because the same people who own her company own all the preferred stock in the nursing home company.

Long says there was a time when analysts accepted everything David Banks said without checking the facts. He became the Pied Piper of the nursing home industry.

Banks is extremely open when talking about the company.

But Long says what's important now is that the numbers are telling the story rather than just Banks.

Banks admits it has taken time for analysts, wary of 1980s predictions that never came true, to admit his company is moving in the right direction following several years of financial difficulties. When business started to turn around for Beverly, many regarded it as a fluke.

With consistent earnings improvements, however, Banks feels he is winning over the analysts.

"Pretty soon, they start believing you can do it," he says.

Is Beverly back?

A lot of industry observers think so.

Faith in a company turnaround is what brought Boyd Hendrickson, executive vice president of operations and marketing, to the company in 1988.

Hendrickson had been with Beverly for five years in the 1970s and was excited to return, but not for old times' sake.

Asked to compare the almost 30-year-old company's early days with the current operation, Hendrickson says, "There is no comparison."

The company consisted of 70 nursing homes when Hendrickson left.

In 1976, Beverly purchased Leisure Lodges Inc., a Fort Smith nursing home company of which Banks was president. That immediately doubled Beverly's size, and the corporation continued on an acquisition binge.

Banks became president in 1979. By the time he became chief executive officer in 1989, the business had grown substantially. It owned nursing homes, retirement centers and pharmacies.

In fact, it had grown too fast.

By 1987, Beverly was losing money.

By the time Banks became CEO, the company was at its lowest point with losses of $104 million.

By 1990, net income was up to about $13 million.

By 1991, there were earnings of $29 million on revenues of $2.3 billion.

Banks succeeded at getting Beverly back on the road to profit.

Yet he admits it was a long road to travel.

Long projects profits of $46 million this year and $67 million for 1993. Still, she says the company's stock price isn't where it should be.

The stock isn't as strong as it was at this time last year. Although it is up from the $7 range earlier this summer, the current $9 per share is not as good as last summer's $10 range.

That doesn't seem to concern David Banks.

"The one thing that I do know is that I don't know what the stock is going to do," he says.

Banks, though, is confident about what Beverly is doing.

"I'm really excited about where this industry is heading," he says. "I feel we have something to offer."

That's something he couldn't say with as much confidence three years ago.

The Turnaround

Beverly isn't the only nursing home company that was hit hard in the late 1980s. But being the largest, its problems were most noticeable.

A significant factor in the company's problems was the 18- to 36-month lag on Medicaid reimbursements in states where Beverly has operations. A June 1990 Supreme Court ruling corrected that situation. Nursing homes can now sue states that don't pay in a reasonable period of time.

There remain problems in some states. Indiana is one.

Beverly lost $12 million with its Indiana nursing homes in 1990 and $8 million in 1991. Even though the state has been ordered to pay, Beverly has taken steps to protect against additional losses this year.

The company is trying to get away from its dependence on Medicaid patients. The emphasis is shifting toward Medicare patients and those requiring therapy.

Nursing homes are no longer just places for permanent residents.

"I think we're much better off getting that person home," Banks says. "A chronic-care patient should only come as a last resort."

In the late 1980s, the average length of stay at a Beverly nursing home was 2 1/2 years.

Today, the average stay has dropped by almost half.

Banks notes that one of the company's California nursing homes that has 200 beds admits 100 new patients each month.

"That's the type of patient we're after," he says. "We want to get them and send them home."

The increase in patient turnover has led to a decrease in staff turnover. Banks says it is more fulfilling for nurses and their aides to see patients recuperate and go home.

When jobs were plentiful in the early and mid-1980s, it was difficult to keep hourly workers in nursing homes. Those employees could make just as much at a fast-food restaurant, and often they made the switch.

Beverly was forced to increase wages an average of 75 cents per hour. That was $135 million out of the company's pocket in a three-month period.

"The recession has been helpful," Long says. "It lets these homes catch up."

Banks is determined that employee happiness be a part of the company's strategy for the 1990s. He conducted surveys to determine what employees wanted and needed. When he saw that more training was necessary, he hired the American Red Cross at a price of "a couple of million dollars" to train workers.

"That was some of the best money we ever spent," Banks says.

Today, Beverly is at the forefront of employee training. It is one component of Banks' plan to transform Beverly from a cost-driven company to a revenue-driven company.

Rather than cutting costs to attain financial goals, Banks put together a management team with the mandate to search for more business and a better mix of revenue producers.

Bobby Stephens, executive vice president of development, was responsible for getting rid of the company's worst nursing homes.

Ronald Kayne, executive vice president of administration and president of Beverly's Pharmacy Corporation of America, helped eliminate the layers of management between nursing home administrators and top company officials.

And Hendrickson was responsible for helping Banks implement the revenue-driven program.

Most of the management team remains in place. Not only are profits up but the number of adverse actions brought against the company's homes by investigators has dropped.

Long says Beverly has adapted well to changes in the industry.

"It was a company built for another age -- bigger is better," she says.

Now, it is changing.

The Main Priority

"This industry is heading into a different place than it has been," Banks says. "I see us doing a lot more sub-acute work."

Beverly generates $500 million annually from rehabilitation services. Revenues in the rehabilitation sector are up 100 percent in the past 24 months.

The company employs 1,800 therapists. Banks expects that number to increase to 2,500 therapists in the next year.

Beverly is entering into agreements with hospitals to provide what is known as sub-acute care.

"We actually have a chance to lower the overall cost of health care," Banks says.

Long estimates that patients pay an average of $1,500 per day for 12-day hospital stays in Florida. After six days, patients who no longer require intensive nursing care at one Humana Inc. hospital are sent to a Beverly unit for rehabilitation.

Humana pays Beverly $195 per day for each empty bed in a 20-bed unit and from $350 to $450 per patient day. Each patient is eventually discharged or sent to one of Beverly's homes for further care. The patients benefit from receiving care specifically geared to their needs, and the hospital saves between $4,000 and $10,000 per patient.

Beverly is considering additional joint ventures. Banks says the sub-acute patients will allow Beverly to generate more profit while keeping workers satisfied.

Also, Banks is more interested in strengthening the homes Beverly currently operates than in opening new nursing homes.

And the chairman says everything has been made easier now that the company is headquartered at Fort Smith.

It once had its corporate offices in Pasadena, Calif.; its accounting offices in Virginia Beach, Va.; and its quality assurance and urban management teams in Atlanta.

Fort Smith was chosen partly because the company had extra real estate there. Little Rock and Virginia Beach also were considered as headquarters locations, but in the end the west Arkansas city won.

"Getting all our decision makers in one spot has helped us get focused," Banks says.

Banks is determined to prove the rise, fall and subsequent rise of Beverly is no fluke.

Hendrickson says that although Beverly's turnaround has been dramatic, it hasn't happened so quickly that it won't last.

"You have to describe it as a huge turnaround," Hendrickson says.

Then, he adds, "The way we're going, there's a lot of opportunity left."

Alternatives For The Elderly

Nursing Homes Shouldn't Be The Only Option For Those Who Are Aging, Expert Says

"It's not a thing you want for your parents, believe me," David Lipschitz says of nursing home care for the elderly.

Lipschitz is a professor of medicine and director of the Division on Aging at the University of Arkansas for Medical Sciences at Little Rock.

He's also the director of the Geriatric Research, Education and Clinical Center at the John L. McClellan Memorial Veterans Hospital at Little Rock.

Although geriatrics is a recognized medical specialty, Lipschitz says the daily care of the elderly has a long way to go.

He refers to nursing homes as warehouses for those who are in transition between an active life and death.

"It is a system that is an abject failure," Lipschitz says.

That doesn't mean there aren't people who should be in nursing homes.

But, according to Lipschitz, there should be more alternatives for those who need assistance without requiring full-time care.

"We are not coming to grips with providing for their total needs," he says. "We treat disease; we don't prevent disease. We're not really thinking in a visionary sense about health promotion and disease prevention."

Lipschitz predicts a revolution in American health care during the next decade, but he says it is unfortunate the nursing home industry isn't already leading the way with alternative forms of care.

And he says Gov. Bill Clinton's plan for health care is incorrectly focused on acute care.

"Eventually, the system will break because it is so inflationary," Lipschitz says.

Cigarette Tax

Ron Jones, assistant director of the state Department of Human Services' Division of Aging and Adult Services, says a 1-cent tax on cigarettes has generated an extra $3 million to promote alternative forms of care for the elderly.

The division funds eight area agencies on aging with $25 million annually.

Jones says if a proposed 25-cent tax on cigarettes is approved by Arkansas voters in November, 20 percent of the estimated $68 million in annual collections will go to the division and its programs for the elderly.

"We feel Arkansas has been setting the pace for a number of years," Jones says.

But change can't come fast enough, according to Lipschitz.

"In most states, including Arkansas, approximately half of all the residents in nursing homes are there for custodial needs only," he says.

Whether the nursing home industry takes the lead or not, Lipschitz says, that must change.
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Title Annotation:includes related article on nursing homes; turnaround of Beverly Enterprises Inc. in Fort Smith, Arkansas
Author:Rengers, Carrie
Publication:Arkansas Business
Date:Jul 27, 1992
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