Genesis Health Ventures, Inc.
Genesis Health Ventures, Inc.
148 West State Street
Kennett Square, Pennsylvania 19438
Fax: (610) 444-3365
Sales: $671.47 million (1996)
Stock Exchanges: New York
SICs: 8051 Skilled Nursing Care Facilities; 8052 Intermediate Care Facilities; 8059 Nursing & Personal Care, Not Elsewhere Classified; 5912 Drug Stores & Proprietary Stores
Genesis Health Ventures, Inc. provides integrated health care services for the nation’s growing elderly population under the brand name Genesis ElderCare. Genesis has taken an innovative approach to health care delivery, building a comprehensive network of managed care facilities and services designed to help senior citizens maintain their independence and mobility. The Genesis network services offerings include community support programs, physician services, home care support, short-term rehabilitation, out-patient rehabilitation, assisted living communities, retirement communities, pharmacy services and medical equipment, and long-term care. Serving more than 70,000 clients, Genesis has focused its operations on building dominant market share in five regional markets: the Northeast, including Massachusetts, New Hampshire, Connecticut, and Vermont; the Delaware Valley, including Pennsylvania, New Jersey, and northern Delaware; Baltimore/Washington, D.C., including Maryland and northern Virginia; Southern Delaware and Eastern Maryland; and Central Florida.
The Genesis network includes more than 150 owned or leased facilities, including approximately 120 nursing homes and geriatric care facilities, ten primary-care physician clinics, six rehabilitation centers, nine institutional pharmacies, five home health care agencies, and 16 managed retirement communities, as well as contracts with more than 500 third-party providers. The company’s ASCO Healthcare subsidiary provides pharmacy and surgical and medical equipment services for the ElderCare network and other nursing homes throughout the East Coast and Mid-Atlantic region. Genesis’s revenues for the year ended September 30, 1996, topped $671 million, with net income of more than $37 million. In 1995 basic health care services accounted for 57 percent of the company’s revenues, while specialty medical services generated 37 percent and management services six percent. Genesis is led by chairman and co-CEO Michael R. Walker and president and co-CEO Richard R. Howard, cofounders of the company.
Innovations in Senior Care in the 1980s
Walker and Howard were already veterans of the nursing home industry when they founded Genesis in 1985. They had worked together since the 1970s, building up two $100 million nursing home chains, as well as their own reputations in the industry. When these chains were bought up by industry heavyweights Beverly Enterprises and HCR, Inc., Walker and Howard decided to go into business for themselves. Setting up operations in an old furniture and dry goods store in the small town of Kennett Square outside Philadelphia, their reputations served them well: on the first day of operation, the company was able to arrange some $32 million in loans.
Setting out to build a nursing home chain with a difference, Walker and Howard used these loans to purchase nursing home facilities in Connecticut and southwestern Massachusetts. At the time, the prevailing culture among nursing homes was to provide long-term custodial care, typically on a fee-for-service basis. Walker and Howard, however, looked toward building a health services network, focused on providing geriatric care, that would emphasize rehabilitative services. “No one wants to end up in a nursing home,” Walker told Institutional Investor, and that belief provided the cornerstone for the company’s growth. Through rehabilitative therapy and services, patients were encouraged to return home—or to less care-intensive facilities—and to independent lives. Genesis offered a program of clinical intervention and managed care that emphasized the restoration of functional ability. This, the company reasoned, would be good for its patients, and for its bottom line. The typical nursing home was expensive to operate, and long-term care provided only low profit margins.
Managed care was still relatively unknown in the health care industry, and nearly unheard of in the geriatric market. However, the projected growth of the elderly population, with forecasts of 35 million by the end of the century and nearly 60 million by the year 2025, signalled the need to control costs among the very population most in need of medical services. From the start, Genesis set out to control its own costs. Rather than contracting out for its network support services, such as pharmacy services, home medical equipment, and rehabilitation therapy, the company instead focused on acquiring these services and their higher profit margins. As clients were discharged from the company’s nursing homes, they could be retained within the company’s network of other services. In 1986 Genesis made the first of many acquisitions, acquiring the Speech & Hearing Network, which was renamed Team Rehabilitation.
By 1990 the company had more than 30 facilities in its network, with 4,500 long-term beds, generating revenues of nearly $145 million. Genesis continued to expand its services network through carefully planned acquisitions. One important consideration was a proposed acquisition’s proximity to other facilities in the company’s managed care network. “If you own a pharmacy in Pennsylvania and a nursing home in North Carolina, you can’t share information,” Walker told the Baltimore Sun, “But if I have a pharmacy, a physical therapist, a physician in the same place, guess what? They can all get together once a week to discuss the patient’s health and get that person out of long-term care.”
Genesis next moved to expand into pharmacy and medical supply services—where profit margins ranged from 10 to 15 percent as opposed to the 3 to 5 percent available on nursing homes—acquiring Accredited Surgical Companies, Inc., and Drug Lane Pharmacies, Inc., both of which repackaged and sold drugs. The two companies were combined to form the ASCO Healthcare, Inc., subsidiary, which was expanded into a full-service medical supply company that supplied not only the Genesis network, but outside nursing homes as well. Genesis also expanded its business by entering a management agreement for providing life-care services at continuous-care retirement centers, and by opening a physician-staffed outpatient clinic.
Growth in the 1990s
Genesis went public in 1991, selling 1.8 million shares and raising $13.5 million, which the company used to pay down some $12.6 million in debt. By then, Genesis operated 42 geriatric-care facilities, managed 13 life-care communities, and held service contracts with more than 140 independent health care providers. The company continued to pursue acquisitions, purchasing Concord Healthcare Corp. and Total Care Systems, which helped boost the company’s revenues to $171.5 million for its 1991 fiscal year. Genesis, which had been profitable since its formation, posted a net income of nearly $3.3 million for the year. Genesis also took another step toward completing its network by developing a subsidiary called Physician Services. This addition allowed Genesis to become the first and only company in its industry to employ its own primary care physicians for its customers.
The following year, the ASCO subsidiary expanded, acquiring Suburban Medical Services for $9 million. The company opened a second rehabilitative outpatient clinic in order to serve customers discharged from its nursing homes; at the same time, the company moved to extend its services with the construction of an assisted-living facility located next to its geriatric facility in Wilkes-Barre, Pennsylvania. At the end of 1992, Genesis posted a second public offering, of 2.5 million shares at $13 per share, setting the stage for the next phase in the company’s growth. By then, the company’s revenues neared $200 million, while net profits climbed to $7.4 million.
The next year, 1993, proved to be pivotal in the company’s development. Genesis expanded its ASCO subsidiary with the purchase of a home health care company and the acquisition of Health Concepts and Services, Inc., a provider of nursing home staff training and services based in Baltimore. By then, ASCO’s revenues had climbed to $80 million, with 80 percent of those sales coming from outside the Genesis network. Within Genesis, the company established its Functional Evaluation & Treatment Unit, later known as the Full Potential process. This unit provided a geriatric assessment program for evaluating and placing patients. Based on physician-directed teams including registered nurses; nurse practitioners; physical, occupational, recreational, and speech therapists; social workers; and dietitians, the unit worked with patients and their families, as well as community and network resources, to develop realistic rehabilitation goals and care plans designed to achieve those goals.
Genesis Health Ventures was founded in 1985 on the visionary principal that health care for the elderly was too focused on long-term custodial care. Instead, founder, chairman and chief executive officer Michael R. Walker sought to build a company that worked with each customer to promote independence and the achievement of a full life. To meet that goal, Genesis Health Ventures created a comprehensive network of people, places and programs united by a common philosophy and mission: To listen to what customers want to achieve, to advise them on what’s possible, and to work to overcome barriers to living a full life.
Until 1993, Genesis’s emphasis had been on expanding the scope of its network services; however, calls for health care reform from the newly inaugurated Clinton administration led Genesis to shift its focus. One expected consequence of health care reforms in general—and the inevitable reforms to the Medicare/Medicaid system for the company’s core geriatric clients—would be abolition of the old fee-for-service health care plans in favor of prepaid, bulk rate plans. With competition for prepayments expected to be intense, Genesis moved to create a critical mass of nursing homes and geriatric facilities that would enable it to compete more strongly for contracts, especially government contracts. In October 1993, the company announced the largest acquisition in its history, with the $205 million purchase of Meridian Healthcare, the largest nursing home operator in Maryland. Genesis added Meridian’s 36 geriatric-care facilities to the 58 already in the company’s network, nearly doubling its revenues, from $220 million in 1993 to nearly $400 million in 1994. Maryland then became the company’s largest market, surpassing Massachusetts. The Meridian acquisition also meant that Genesis would be able to expand its range of services into Maryland, where Genesis was by then the state’s largest senior care provider, controlling costs by achieving economies of scale.
The Meridian acquisition was the first in a flurry of new acquisitions. In a move to expand into the burgeoning home health care market, Genesis purchased a 14 percent share in a partnership corporation acquiring Baltimore’s Visiting Nurse Association. The company also entered a strategic alliance with Horizon Healthcare to provide pharmacy services in the New England region. By 1995, the company had successfully absorbed Meridian’s operations under the Genesis banner, gaining recognition as well for its policy of maintaining both existing management and staff, ensuring continuity of client care. This policy served the company well as it sought further acquisitions.
After acquiring Pennsylvania-based TherapyCare Systems LP for $7 million in April 1995, Genesis, through ASCO, bolstered its home health care business in June of that year with the $2 million acquisition of Baltimore-based Eastern Medical Supplies, Inc., and that company’s Eastern Rehab Services, Inc., affiliate. The new acquisitions, which generated about $3.5 million in annual revenues through the sale and rental of home medical equipment and respiratory rehabilitation equipment, provided Genesis with increased access to the home health market through hospital affiliations, hospice contracts, and two retail stores. Helping to fuel the company’s expansion was a new public offering that raised nearly $52 million, enabling Genesis to pay down debt associated with the Meridian acquisition.
By August 1995, Genesis announced its next large acquisition, agreeing to pay $82.5 million for McKerley Health Care Centers, the largest nursing home chain in New Hampshire. A principal factor in the family-owned chain’s decision to sell to Genesis was the company’s treatment of its Meridian employees: all of that company’s managers, executives, and staff had kept their jobs, while new jobs had been created, and two of Meridian’s executives had been promoted to key executive positions within Genesis itself. The acquisition of McKerley added 15 owned or leased geriatric care facilities, with 1,500 beds and some 1,500 employees.
At the beginning of 1996, with 1995 revenues of $487 million and net income of nearly $24 million, Genesis made plans to build a new, $16 million, 100,000-square-foot headquarters in Kennett Square. At the same time, the company consolidated its operations, bringing its core businesses under the trademarked brand name Genesis ElderCare. Genesis Health Ventures, Inc., was kept on as the company’s legal name, and the name under which it traded on the New York Stock Exchange.
Genesis’s acquisition drive continued through 1996. In April, the company reached agreement to purchase NeighborCare Pharmacies for $57.25 million. NeighborCare, which supplied drugs to nursing homes, operated pharmacies in physician offices, and provided infusion therapy treatments in homes and nursing homes, was merged into the ASCO subsidiary. The following month, Genesis agreed to pay New York-based National Health Care Affiliates, Inc., $133.6 million to acquire 17 elderly care facilities in Florida, Virginia, and Connecticut, adding more than 2,500 beds, as well as a rehabilitation therapy business and a nutritional therapy business. In keeping with its focus on its core markets, Genesis also agreed to sell several Indiana nursing homes acquired through its Meridian purchase.
Before closing out its 1996 fiscal year, Genesis made its largest acquisition to date, agreeing to pay $223 million to acquire Geriatric & Medical Company, which, with 27 nursing homes, added another 3,500 beds to Genesis’s New Jersey and Pennsylvania networks. By the end of its 1996 fiscal year, Genesis had boosted its revenues to $671.5 million and posted net income of more than $37 million. The addition of Geriatric & Medical’s revenues to Genesis’s 1997 sales was expected to help the company near its goal of $1 billion in revenues, while the Genesis history of carefully managed growth pointed to a continued future along the acquisition trail.
Principal Operating Units
Genesis ElderCare Network Services; Genesis ElderCare Physician Services; Genesis ElderCare Rehabilitation Services; Genesis ElderCare Home Care Services; Genesis ElderCare Centers; ASCO Healthcare-Genesis ElderCare Network; The Tidewater Healthcare Shared Services Group.
Atkinson, Bill, “NeighborCare to Be Bought by Pa. Chain,” Baltimore Sun, April 23, 1996, Business 1C.
Brooke, Bob, “Genesis Project Marks New Beginning for Downtown,” Philadelphia Business Journal, January 12, 1996, p. 23.
Fahey, Tom, “McKerley Sought Sale,” Union Leader, August 23, 1996, Section: Business 1.
“Genesis Health Ventures,” Institutional Investor, July 1994, p. S22.
Jones, John A., “Genesis Health Is Set up to Manage Care for the Elderly,” Investor’s Business Daily, February 12, 1996, p. A33.
——, “Genesis Expands Geriatric Network by Acquiring Meridian,” Investor’s Business Daily, March 28, 1994, p. 40.
Meisol, Patrick, “With Acquisition of Meridian, Genesis Health Nears Goal of Regional Domination,” Baltimore Sun, October 3, 1993, Business.
Pallarito, Karen, “CFO’s Creative Solutions Win Cain Bros. Award,” Modern Healthcare, September 9, 1996, p. 44.
Vincent, Dale, “McKerley Health Care Chain Sold for $82.5M,” Union Leader, August 22, 1995, p. Al.
—M. L. Cohen