IHS blames decline in rehab demand for 4Q earnings drop
IHS blames decline in rehab demand for 4Q earnings drop
By KAREN PIHL-CAREY
HHBR Staff Writer
A decline in demand for rehabilitation services, as well as the changes in Medicare reimbursement, has caused Integrated Health Services (IHS; Owings Mills, MD) to post a sharp drop in earnings for 4Q98.
The company reported a net income of $10.8 million, 21 cents per share, compared to a net loss in 4Q97 of $61.9 million, $1.59 per share. During the quarter, the company incurred about $15 million in severance and transition costs related to the Medicare prospective payment system (PPS). In 4Q97, it recorded an $82.1 million non-recurring charge for its acquisitions of RoTech and the Horizon/CMS assets and the disposal of certain non-strategic assets. Revenues in 4Q98 were $718.7 million, a 61% increase over 4Q97 revenues of $445.2 million.
For the year, the company saw a net loss of $68 million, $1.08 per share, on revenues of $3 billion, compared to an FY97 net loss of $33.5 million, 60 cents per share, on revenues of $1.4 billion.
Due to the Medicare prospective payment system, there is a smaller demand for therapy services in the company’s rehabilitation division. Customers of the division are admitting fewer Medicare patients and reducing their use of rehabilitative services, possibly due to fears of how to cope financially with the new PPS, IHS said. To address this, the company plans to reduce costs and will work with the customers, helping them better understand the system. IHS has also eliminated 1,000 positions and transitioned therapists from salary to hourly.
As announced in February, the company is talking with financial organizations interested in a leveraged buyout of its RoTech division. Market watchers have also speculated that IHS would be taken private in a leveraged buyout, reported Dow Jones Business News. Other companies, like Sun Healthcare Group (Albuquerque, NM) and Mariner Post-Acute Network (Atlanta), have also been the subject of such talk.
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