By Damon Cline, The Augusta Chronicle, Ga. Knight Ridder/Tribune Business News
Feb. 15--CareSouth Homecare Professionals was created from the ashes of a scandal-ridden company's bankrupt assets, then nearly went bankrupt itself when the government changed how it paid home-health companies a few years ago.
Today, standing in CareSouth's new 30,000-square-foot headquarters on Walton Way Extension, where 200 workers last year processed more than $200 million in revenue, a visitor would consider that as ancient history.
Turnaround. Rebound. Rebirth. Whatever you call it, CareSouth has done it.
The 8-year-old company, which had $31 million in debt in 1998 and posted a $5 million loss in 2000, is on track to beat the $5 million profit it made in 2003.
CareSouth employs 650 at six home-health agencies in five states, where its registered nurses and aides provide doctor-prescribed, in-home care to elderly, debilitated and recovering patients.
The company also manages nearly 2 dozen more home-health operations for organizations such as University Hospital in Augusta and St. Joseph's/Candler in Savannah, Ga.
The company wants is hoping to get a bigger piece of the $40 billion home-health market through acquisitions and, possibly, by becoming a public company like home-health giant Gentiva Health Services, a $750 million, Nasdaq-traded corporation.
'Wall Street is looking at home health in a very positive light,' said CEO Rick W. Griffin. 'The future looks really, really bright where we're going.'
And why not? The Census Bureau estimates that more than one-fifth of the U.S. population will be 65 or older by 2030.
'That's a huge number,' Mr. Griffin said. 'Those are the people likely to utilize our service.'
Mr. Griffin was general counsel for the Central Georgia Health System, the Macon-based hospital network that created CareSouth in September 1995 when it paid $54.7 million for the assets of Augusta's Healthmaster Home Health Care, which was bankrupted by a Medicare fraud scandal that sent its owner and top two executives to prison.
CareSouth is now majority-owned by Alexandria, Va.-based venture capital firm Capitol Partners LLC, with Mr. Griffin and other key managers holding small equity stakes.
The management buy-out deal was consummated March 9, 1998. Twenty-one days later, when the Medicare home-health payment system was overhauled, CareSouth nearly went under, like more than 3,000 of its competitors.
'It was a nightmare,' Mr. Griffin said.
CareSouth, like most of its peers, gets 90 percent of its payments from Medicare, the federal health insurance program for people over 65.
Medicare's home-health payment system has changed many times since it was created in 1965, but no change was more dramatic than the 1997 Balanced Budget Act, which converted the government's payment method from 'cost-based' to 'prospective-based.'
Under the cost structure, Medicare simply reimbursed home care companies dollar-for-dollar for their services. With no incentives to prompt efficiency, fraud and abuse became rampant, as in the Healthmaster case.
The prospective system aimed to change that by reimbursing companies in 60-day intervals based on the patient's condition and geographic location. That brought efficiency because companies would incur a loss if their treatment costs exceeded the government's reimbursement.
'It's a good system,' Mr. Griffin said. 'The companies that deliver the best care in the most efficient manner are the ones that are the most successful financially.'
The problem for CareSouth and the rest of the industry was that the system took two years to implement, instead of months as the government had forecast.
The interim system designed to be a transition was simply the old cost system with reduced reimbursements. Not only that, but the reductions were made retroactive for a year, meaning companies such as CareSouth had to give back what the government said were overpayments.
'When that happened, we were absolutely guaranteed a huge loss,' Mr. Griffin said. 'They basically said that when we were reimbursed $100, we should have only been paid $75.'
So, on April 1, 1998, when the intermediate system went into effect, CareSouth suddenly owed the Medicare program $14 million. That violated the company's loan covenants with Bank of America, which called due the company's $17 million debt.
Had it not been for the cash infusion from Capitol Partners, CareSouth would have perished like 3,000 other home health companies between 1998 and 2000, based on figures from the National Association for Home Care in Washington, D.C.
'They kept it alive,' Mr. Griffin said.
With the dark days behind it, CareSouth hopes to bring more business to its Augusta office, which opened in January 2003. The renovated facility in the Walton's Corner office-retail park was formerly occupied by an Eckerd drugstore and a Winn-Dixie supermarket.
'We have a large infrastructure in Augusta that will allow us to take in additional business without incurring extra cost,' said Mr. Griffin, whose office was the frozen-meat section in its past life.
There probably will be more Medicare twists and turns ahead. Mr. Griffin said the fundamentals of CareSouth and home health care won't change.
'We believe in the long term, this is an industry the country needs,' he said.
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(c) 2004, The Augusta Chronicle, Ga. Distributed by Knight Ridder/Tribune Business News.
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