National Research Corporation
National Research Corporation
Sales: $43.7 million (2006)
Stock Exchanges: NASDAQ
Ticker Symbol: NRCI
NAIC: 541710 Research and Development in the Physical, Engineering, and Life Sciences
National Research Corporation (NRC) provides the healthcare industry in the United States and Canada with survey-based performance measurement, analysis, and tracking services, used to provide better patient care, meet regulatory requirements, and provide a point of comparison between competitors. The company’s wide range of clients includes managed care organizations, medical groups, hospitals, health systems, medical groups, federal and state agencies, and employers. The Healthcare Market Guide is NRC’s oldest product, which is now delivered online. Drawing data from 200,000 households, it compiles a consumer-reported assessment of hospitals, health systems, and health plans in the United States, used by clients to assess and improve their place in the healthcare marketplace. The Guide also delivers information about consumers’ healthcare Internet usage, and the Product Line Preference Report offers a detailed profile of consumers who prefer a client’s facility. In addition, NRC’s annual “Consumer Choice” awards are presented to the most highly regarded hospitals in nearly 200 U.S. markets. The NRC+Picker unit uses survey information to uncover the patient experience at hospitals, and then offers solutions to help clients implement changes to achieve patient-centered care.
NRC also provides health plans, physician organizations, and healthcare purchases with several other profile and survey products. Senior Health Profiles, for example, identifies high-risk Medicare enrollees. Acting for the client, the company sends a Senior Health Questionnaire to a clients’ enrollees. Using the responses, NRC then determines Pra (Probability of Repeated Admission), Frailty, and Depression Scale scores, and produces a High-Risk Report for each high-risk enrollee. The information can then be used to plan effective interventions and other purposes. The unit also provides Good Health Profiles to help health organizations with care and disease management interventions for the under-65 population. NRC is based in Lincoln, Nebraska. Although a Public Company listed on the NASDAQ, NRC is 70 percent owned by founder and CEO Michael D. Hays.
NRC was founded in Lincoln, Nebraska, by Michael Hays in 1981. Little is known about Hays, who is reluctant to grant interviews and provides only a minimum amount of personal information in the company’s filings with the Securities and Exchange Commission. According to those filings, he was born in the mid-1950s and served seven years as vice-president of SRI Research Center, Inc, a Lincoln polling company that was founded in 1975 by Jim Clifton, the son of the cofounder of Selection Research Inc. The two companies were operated separately until Selection Research acquired the famous Gallup Organization in 1988 and SRI was ultimately brought into the fold. From the start Hays looked to carve out a niche serving the information needs of the healthcare industry.
In September 1988 Hays was joined by Jona S. Raasch, a veteran of the A.C. Nielsen Corporation. He took over as NRC’s vice-president and chief operations officer. In that same year NRC began publishing the Healthcare Market on a biannual basis, gathering an ever increasing storehouse of hospital consumer data. The company sold the market information and competitive intelligence product to hospitals at a discounted prepublication price. It then provided a steady source of income as a renewable, stand-alone syndicated product. NRC also received income from custom research projects and a renewable performance tracking service that took the name The NRC Listening System.
By 2002 NRC revenues reached $2.6 million. The company began exhibiting strong growth in 1994 when revenues surged to $6.8 million, a more than twofold increase over the previous year. The company’s renewable performance tracking services led the way, due to the healthcare industry’s increasing emphasis on patient satisfaction. In 1991 the National Committee for Quality Assurance began accrediting managed care organizations and required that an independent third party conduct an annual standardized member satisfaction survey. This requirement resulted in more tracking projects from current clients as well as an increase in new clients. Revenues from tracking services, as a result, grew from $4.4 million in 1994 to $9.6 million in 1996, when total revenues reached $12.6 million. Operating income also increased from $1.7 million in 1994 to $3.7 million in 1996.
The need for tracking services increased even further when a leading healthcare organization accrediting body, The Joint Commission on Accreditation of Healthcare Organizations, broadened its performance measurement requirements, and the government administrator of Medicare benefits, the Health Care Financing Administration, required health maintenance organizations to determine the senior population’s satisfaction with their services. Moreover, a number of states passed managed care bills that included consumer-rights provisions, spurring further business for NRC, which saw the number of clients increase from 155 in 1994 to 210 in 1996.
NRC went public in 1997. In a preliminary step, the company was reincorporated in Wisconsin in September of that year, and then with William Blair & Company and Robert W. Baird & Co. Incorporated acting as underwriters, the company netted $16.8 million in an initial public offering (IPO) of stock, priced at $15 per share. In addition, Hays benefited from the sale of a reported 850,000 shares, which fetched $17.5 million before expenses. NRC’s proceeds were earmarked for general corporate purposes as well as to pay special cash bonuses to members of Hays’s executive team. The company held out the possibility of using some of the cash to make acquisitions of complementary businesses, and having publicly traded stock at its disposal was expected to help in the financing of these deals. The common stock was also used to retain and attract key employees.
NRC is the leading provider of ongoing survey-based performance measurement, analysis and tracking services to the healthcare industry. NRC has achieved this leadership position based on over 25 years of industry experience and its relationships with many of the industry’s largest providers. NRC addresses the growing need of healthcare providers to measure the care outcomes, specifically satisfaction and health status, of their patients and/or members.
The downside of being a public company soon became apparent, however. In early December NRC’s largest client, Kaiser Permanente-Northern California Region, opted to hire a different company to handle its performance measurement studies in 1998. Kaiser had accounted for 31 percent of NRC’s total revenues in 1996 and 40 percent in 1997. The next largest client, the U.S. Department of Defense, accounted for just 15 percent. Kaiser’s loss was a clear blow to the company, despite assertions that this was an isolated event and not part of a trend. Nevertheless, investors abandoned the stock, which had been approaching $20 a share but tumbled to less than $2.
With Kaiser still in the fold, NRC posted record revenues of $16.3 million in 1997 and operating income of $3.2 million. A year later the company improved sales 8.5 percent to $17.7 million. While the company was able to add some new clients, it mostly made up the loss of the Kaiser contract through the June 1998 acquisition of Healthcare Research Systems for $5.5 million plus the assumption of debt and other liabilities. As a result of charges incurred in the transaction, NRC reported a $67,000 loss in operating income in 1998. Based in Ohio, Healthcare Research System offered comparable survey-based performance measurement, analysis, and tracking services to healthcare clients. In addition to adding new clients, the acquisition provided NRC with some new services and products to offer existing clients. The company also looked to expand its opportunities by opening sales offices in Boston and Ann Arbor, Michigan. The Michigan office focused solely on securing state and federal government contracts.
To improve the productivity and efficiency of the enlarged operation, NRC invested in its information technology to create a fully automated production system (QualPro). The company attempted to put the new system online in early 1999 but encountered numerous problems, which were ironed out over the next few months and finally implemented. The investment positioned NRC to take advantage of approaching opportunities, as consumers began demanding an increased amount of information about the healthcare system. Baby boomers were dealing with elderly parents and becoming concerned about their own future healthcare requirements. Never shy about making their needs known, the boomers were driving a demand for more and better information about healthcare plans. NRC sought to be ahead of the curve as it headed into the new century.
The addition of new clients resulted in an increase in revenues to $18.2 million in 1999, and NRC realized $1.7 million in operating income. With QualPro in operation for an entire year, NRC began to reap the benefits of its new computer system in 2000. Although revenues improved only slightly to $18.3 million, operating income doubled to $3.3 million, as did net income to $2.7 million. Because of lower margin contracts in 2001, sales dipped to $17.7 million in 2001; nonetheless, the company was still able to net $1.7 million. NRC also completed another significant acquisition in May 2001, paying $4.1 million for the healthcare survey business of The Picker Institute, which included patient and employee surveys. Founded by Harry and Jean Picker, the institute was at the forefront of the patient-centered care movement, using surveys to determine what patients wanted, what was important to them, and what helped or hurt them in managing their own health problems. NRC was allied with this highly respected organization and Hays became an adviser to Picker.
NRC benefited from the new Picker products and the addition of the U.S. Department of Veteran Affairs in early 2002, as well as other new clients, which led to a 26.7 percent jump in revenues to $22.4 million and net income of $3.8 million. Sales increased further in 2003, when revenues improved to $26.9 million and net income to $4.4 million, spurred in part by an acquisition that expanded the company’s operations to Canada, which required similar public reporting. In May 2003 NRC had paid approximately $1.4 million for Toronto-based Smaller World Communications Inc., a provider of survey-based performance measurement services to the Canadian healthcare industry.
NRC launched a three-year plan in 2004 to build its sales force from six associates to 36, and saw an immediate return on its investment. For the year the company experienced a 10.3 percent increase in revenues to $29.7 million and an improvement in net income to $4.5 million. Nevertheless, Hays in his annual shareholders’ letter maintained that the “2004 performance was not up to our expectations. While top line growth in our core business was satisfactory, this growth was offset by volatility in federal government sector revenues.” While no major change of course was planned, Hays did promote Joseph W. Carmichael to president in 2004.
- National Research Corporation (NRC) is founded in Lincoln, Nebraska.
- Healthcare Market Guide is first published.
- Company goes public.
- The Picker Institute healthcare survey business is acquired.
- NRC enters Canadian market.
- The Governance Institute is acquired.
Problems with federal sector contracts continued in early 2005, leading to a slow start, but conditions improved significantly in the second half of the year, resulting in an increase in sales to $32.4 million and net income to $5.2 million. NRC also took steps during the year to prepare the ground for future growth by completing another acquisition. In September 2005 it paid $3.5 million in cash for Geriatric Health Systems, LLC, a California-based company that performed surveys on insurance risk, patient outcomes, and member satisfaction for health plans in 40 states, including half of the largest payers.
NRC grew even larger and created some diversity in May 2006 when it acquired San Diego-based The Governance Institute (TGI) for $19.8 million. After 20 years in business TGI was a well established company that hosted conferences to provide strategic advice to key executives at hospitals and health systems. As a result of these acquisitions, NRC’s revenues increased to $43.7 million in 2006 and net income totaled $5.9 million. With industry trends favoring it and a well-rounded slate of products and services, NRC appeared to be poised to enjoy steady growth in the years to come.
Smaller World Communications, Inc.; The Governance Institute.
The Gallup Organization; Press Ganey Associates, Inc.; Verispan, L.L.C.
Cayton, Rodd, “Investors Like National Research,” Lincoln Journal Star, July 23, 2006.
Crum, Rachelle, “Natl. Research Buys Conference Producer,” Tradeshow Week, June 19, 2006, p. 3.
Jordan, Steve, “Lincoln, Neb.-based Firm Credits Computer System for Fivefold Earnings Gain,” Omaha World-Herald, August 2, 2000.
Larson, Virgil, “Lincoln, Neb.-based National Research Says Profits Grew 53 Percent,” Omaha World-Herald, November 6, 2002.
Olberding, Matt, “National Research Buys California Company,” Lincoln Journal Star, September 20, 2005.
Piersoli, Richard, “National Research of Lincoln Buys San Diego Company,” Lincoln Journal Star, May 31, 2006.