Sales: $549 million
Stock Exchanges: New York
SICs: 8051 Skilled Nursing Care Facilities; 8052
Intermediate Care Facilities; 8059 Nursing and Personal
Care Facilities, Not Elsewhere Classified
GranCare, Inc., is a leading U.S. provider of comprehensive healthcare services for the elderly. The company operates nursing care facilities and pharmacy operations and provides services related to contract management, home health care, and assisted living. After its formation in 1990, GranCare grew explosively through mergers and acquisitions. By mid-1995 the organization boasted, among other credits, 17,400 beds in its healthcare network.
Although it was incorporated in 1990, GranCare is the successor to American Medical Services, Inc., a nursing home company formed in the late 1960s. American Medical grew slowly before it acquired a string of nursing homes in the 1980s. During the 1980s, in fact, the operation expanded at a rate of about 20 percent to 30 percent annually. Transworld Corp., a hotel and food services company based in New York City, purchased the operation in 1986 for approximately $93 million. By 1987 American Medical was operating 30 nursing homes in four states: 11 in Wisconsin, 14 in California, 4 in Colorado, and 1 in Illinois. The company was generating annual sales of about $90 million by the late 1980s.
In 1990 American Medical Services merged with a small nursing home outfit called HostMasters; the resulting company was called GranCare. These three major changes—the buyout of American Medical, the merger, and the formation of GranCare—were spearheaded by Gene E. Burleson, who became chief executive of GranCare. The 49-year-old Burleson was a healthcare industry veteran. From 1974 to 1989 Burleson worked for American Medical International, Inc., a provider of healthcare services. He acted as president and chief executive of that company’s European operations for nine years and last served as president of the overall holding company, American Medical Holdings, Inc. Burleson left American Medical Holdings in 1989, shortly before he created GranCare. Burleson was joined by Roy Christensen. Christensen had founded Beverly Enterprises, the nation’s largest nursing home operator.
GranCare was created with the help of venture capital funding. The enterprise started out with annual revenues of $92.6 million garnered from 39 health care centers that supported about 5,200 beds. During 1991 the company managed to snare a few other small nursing home operators, which provided insight into its central goal. Management hoped to eventually acquire a broad network of nursing home facilities and related care enterprises. The goal was to improve their profitability by achieving economies of scale related to paperwork and administrative tasks, purchasing, and other operational burdens. To that end, Gran-Care completed its first major acquisition in 1991 when it bought 23 nursing homes from ARA Living Centers Inc. By late 1991, after consolidating all of its operations, GranCare was operating 60 long-term healthcare facilities that supported nearly 8,000 beds.
GranCare generated revenues of about $175 million in 1991, $3.8 million of which was net earnings. Those figures thrust the fledgling start-up to the ranks of a mid-size corporation in little more than a year after its inception. Because of the acquisitions, however, GranCare had accrued a heavy load of debt. To diminish its liabilities and generate more cash for acquisitions, GranCare offered its stock to the public in November of 1991. The company sold 2.7 million shares at $10.25 each, which pumped nearly $27 million into its coffers. Capital from that and subsequent offerings would be used by GranCare during the next few years to transform the company into a leading U.S. provider of care for the elderly.
During the first part of 1992 GranCare worked to streamline its operations. It squelched its acquisition program, with the exception of a few additions to its network of nursing homes and the integration of four institutional pharmacies. By mid-1992 the California-based company was operating 68 nursing homes in California, Wisconsin, Colorado, Arizona, Illinois, and South Dakota, as well as the four pharmacies. GranCare’s extension into the pharmacy business reflected an important aspect of Burleson’s long-term strategy. As he built GranCare’s nursing home network he planned to establish divisions within the company that would provide specialty medical services to and through the facilities. The pharmacies supplied prescription drugs, administered computerized medical records, provided consulting services to GranCare customers, supplied wound care, and offered intravenous therapy services. The division also sold medical goods, including orthotic and prosthetic equipment.
Late in 1992 GranCare made its second major acquisition. It purchased Professional Health Care Management Inc. of Ann Arbor, Michigan. That buyout brought 17 long-term health care facilities into its network, which added approximately 2,500 beds to GranCare’s total. It also tagged a fat $65 million onto its revenue base. As a bonus, the acquisition added to GranCare’s rehabilitation services and gave it an ownership interest in an x-ray services operation. Shortly before the buyout, GranCare acquired an interest in five skilled nursing centers and two retirement centers. Also in 1992, GranCare launched a home health care operation to provide skilled nursing services, therapy, and home health aides. GranCare sold off three of its facilities during the year, giving it a year-end total of about 85 locations in seven states with 11,389 beds.
GranCare generated sales of $373 million in 1992 and $13.2 million in net income. The gains were largely the result of the sheer size of the company’s network of nursing homes and care centers. Importantly, though, these numbers also reflected healthy gains in GranCare’s specialty medical services and pharmacy divisions. Specialty medical services, which included services like rehabilitation therapy and skilled nursing care, accounted for about 20 percent of total company revenues in 1991. In 1992 that figure rose to more than 40 percent and would continue to grow to 50 percent by 1994. At the same time, GranCare’s pharmacy division increased its sales to about $93 million in 1992. The importance of the add-on profit centers was that they generally offered greater profit margins than traditional nursing home fees.
GranCare intensified its acquisition drive in 1993. In January Burleson purchased Coordinated Home Health, Inc., Coordinated Nursing Services, Inc., and Infusion Plus, Inc. Those additions served to bolster GranCare’s thriving specialty medical services. Also in January, the company bought out Colter Village, which consisted of a retirement center and a skilled nursing facility. A few months later GranCare picked up Bella Vita, a 126-bed skilled nursing facility in Colorado, and Pacific Therapies, Inc., which provided physical, occupational, and speech therapy services. In April GranCare added Patient Therapy Systems Inc., a therapy bed and services company, and four skilled nursing facilities located in Wisconsin. Other 1993 acquisitions included Brim Medical Equipment and Supplies, Inc., an enteral and urological supply company. Those purchases helped push GranCare’s 1993 sales past the half-billion-dollar mark.
Also boosting GranCare’s sales during 1993 were important additions to its flourishing pharmacy division. In June GranCare bought Winyah Dispensary, LTC, which served the institutional market for pharmaceuticals. Then, in September, GranCare purchased Medication Delivery Systems, Inc., another institutional pharmacy. Finally, in December GranCare made a major acquisition when it scooped up CompuPharm, Inc. Because of the size and name recognition associated with the new holding, GranCare renamed its pharmacy division CompuPharm. Going into 1994, GranCare’s CompuPharm subsidiary consisted of a coast-to-coast network of 13 pharmacies that were serving institutions containing 57,000 beds.
GranCare’s expansion and profits during the early 1990s were the result of management’s long-term strategy of building a formidable nationwide network of healthcare services for the elderly. Its success was augmented, however, by demographic trends that were shaping the industry. Most notable among those trends was the growth in the number of Americans aged 65 and over. As the size of that segment of the population grew during the early and mid-1990s, so did GranCare’s potential client base. In 1990 the percentage of Americans aged 65 to 74 that were receiving long-term care was about 1.4 percent. The share for the 75 to 84 age group was more than six percent. Those figures were expected to grow at an increasing rate through the turn of the century. For example, the U.S. census bureau estimated that the number of people aged 75 and over would increase from about 13 million in 1990 to about 17 million, or 6.1 percent of the population, by the year 2000.
Thus, GranCare was building its network for a rapidly growing market. Furthermore, it was taking advantage of the trend away from hospital care and toward managed and home care, which would allow it to benefit disproportionately from emerging demographic trends. To that end, GranCare planned to increasingly shift its focus from traditional nursing home care, in which patients typically stayed for years, to post-acute care, which typically ranged from a few days to a few weeks. GranCare offered the advantage of lower costs at its facilities, compared to inpatient hospital costs.
GranCare continued to buy new companies in 1994, though at a slower pace. Most of its acquisitions were additions to its profitable pharmaceutical division. In March it purchased PPCP, Inc., another institutional pharmacy services company. Similarly, Burleson oversaw the buyout of Merit Pharmacy, Inc., about a month later. In July, GranCare picked up Long Term Care Pharmaceutical Services Corporation, an institutional pharmacy services company in Indiana. That major buyout was followed by the acquisition of Ricketts Drug, Inc., in Virginia. GranCare also acquired interests in seven South Carolina long-term healthcare facilities. At the same time, the company initiated a restructuring effort designed to consolidate and streamline operations and shake up top management. The company jettisoned several nonperforming units, including its rehabilitation operation. Christensen resigned as chairman—he was replaced by Burleson—and GranCare’s chief financial officer resigned. Finally, GranCare’s headquarters were relocated to Atlanta, Georgia.
GranCare boosted sales to about $550 million in 1994, about $15.2 million of which was net income. Thus, in four years it had enlarged its revenue base more than five-fold. However, the headiest growth was yet to come. In April of 1995, GranCare purchased Cornerstone Health Management, a contract management firm based in Dallas, Texas. That company specialized in the implementation and management of geriatric specialty programs, including post-acute skilled nursing and mental health services. Importantly, that purchase increased Gran-Care’s toehold in the rapidly growing contract management industry. By mid-1995 GranCare would be operating 105 contract management programs (through which it contracted to provide specialty services) in acute care hospitals in 20 states.
Much more important than the Cornerstone buyout was Gran-Care’s announcement in May that it was going to acquire Indiana-based Evergreen Healthcare, Inc. Evergreen was the largest company GranCare had ever bought; it operated 64 long-term care facilities with more than 7,500 beds in nine midwestern and southeastern states. The organization was similar to GranCare in that it offered subacute, rehabilitation, and pharmacy services. It also provided specialized services for diseases like Alzheimer’s and Huntington’s through five dedicated units. The acquisition was completed in July, making GranCare the sixth largest publicly traded long-term care facility in the United States. Because of that merger, GranCare’s revenues in 1995 were expected to surge into the $750-million range. “This virtually doubles our size, and it gives us a more significant presence in the Southeast,” said Kay Brown, GranCare senior vice president, in the May 4, 1995, Atlanta Constitution.
By mid-1995 GranCare was operating 137 nursing care facilities with 17,500 beds located in 15 states. About 70 percent of its revenues were coming from skilled nursing care services and subacute care, which included rehabilitation therapy, dietary, therapeutic, and other services. About 22 percent of its sales were attributable to pharmacy services, which had expanded to include 24 full-service institutional pharmacies and three satellite offices. Contract management fees accounted for about four percent of sales, while home healthcare and assisted living services each made up about one percent. Although the company was shouldering a relatively heavy debt load, Burleson planned to sustain his strategy of growth through acquisition, and to capitalize on demographic and industry trends in the long-term care industry.
Brown, Ken, “GranCare Announces Reorganization, Corporate Relocation,” PR Newswire, August 17, 1994.
Burleson, Gene E., “Athans Joins GranCare as Chief Operating Officer,” PR Newswire, November 4, 1993.
——, “GranCare to Acquire 17 Facilities Representing 25 Percent Capacity Increase,” PR Newswire, September 17, 1992.
Cole, Benjamin Mark, “Fledgling Nursing-Home Operator GranCare Goes Public, Immediately Bucks Bear Market,” Los Angeles Business Journal, December 2, 1991, p. 29.
Conroy, William, “American Medical Buys Illinois Nursing Home for $4.6 Million,” Business Journal-Milwaukee, May 18, 1987, p. 25.
DeWitt, John, “Nursing Giant Aims to Expand, Fine-Tune Focus,” Arizona Business Gazette, November 17, 1994, p. 1.
GranCare, Inc., New York: Smith Barney, July 28, 1995.
GranCare, Inc.— Teamed Up and Ready to Roll, New York: Salomon Brothers, July 1995.
Gross, Neil, “Kiss That Old Patient Goodbye,” Business Week, June 26, 1995.
Miller, Andy, “GranCare Buying Nursing Home Firm,” Atlanta Constitution, May 4, 1995, p. 1E.