Gentiva Health Services, Inc.

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Gentiva Health Services, Inc.

3 Huntington Quadrangle
Suite 200S
Melville, New York 11747-4627
U.S.A.
Telephone: (631) 501-7000
Fax: (631) 501-7148
Web site: http://www.gentiva.com

Public Company
Founded: 1971
Employees: 14,550
Sales: $868.8 million (2005)
Stock Exchanges: NASDAQ
Ticker Symbol: GTIV
NAIC: 621610 Home Health Care Services

Gentiva Health Services, Inc. is the largest home healthcare services company in the United States, serving 500,000 customers in all 50 states, 36 through more than 400 company-operated locations and 14 through third-party providers. The company operates two brands: Gentiva and CareCentrix. Gentiva home services include nursing; social work; nutrition; disease management education; physical, occupational, speech, and neurorehabilitation services; and daily living assistance, such as providing housekeeping for the disabled or elderly. CareCentrix manages and coordinates the delivery of home nursing services for commercial insurance organizations and government health benefit plans. The 2006 acquisition of the Healthfield Group moved Gentiva into the hospice business. Based in Melville, New York, Gentiva is a public company listed on the NASDAQ.

FOUNDER, A POSTWAR PIONEER OF THE TEMPORARY STAFFING INDUSTRY

Gentiva grew out of the Olsten Corporation, founded by William Olsten. Born in 1919 he grew up in Yonkers just north of New York City. In 1940 he went to work at the General Motors assembly plant in Tarrytown, New York, which began making Avenger torpedo bombers to support the military buildup of World War II. Because so many men were called to military service, despite his young age he became a supervisor of a unit mostly staffed with women workers. He, too, was drafted in 1943 and eventually would find himself in Europe with the Third Army. After his discharge he worked in sales and marketing for a company that manufactured milk bottle caps. In 1950 he learned of a new industry, temporary staffing, which got its start in 1946 when Kelly Services was started. Manpower, Inc. followed in 1948. To take advantage of the demand for part-time office workers—legal secretaries, typists, clerks, and receptionists—Olsten opened a one-man employment office on West 42nd Street in Manhattan and began to place women, who since the war continued to join the workforce in increasing numbers. In the meantime he furthered his business education at the New York University's School of Commerce, earning a degree in 1951.

The demand for Olsten's services was so strong that he had trouble finding enough women employees. He even created what he called the Olsten Mobile, a station wagon that aimed to attract women dropping off their children at bus stops in the Bronx, Brooklyn, and Queens. Olsten turned his New York operations into a national enterprise, and as the staffing industry began to expand in the 1960s, Olsten kept pace, offering workers outside of the secretarial field. In 1971 he became involved in home healthcare.

By the end of the 1970s Olsten Home Health Care had eight offices located across the country. But by the middle of the 1980s, the unit, generating about $20 million a year in revenues, was losing money. With the 1985 hiring of Robert Fusco, who would go on to become president of the unit, Olsten Home Health Care began to show dramatic improvements. Business was further helped in the late 1980s when a larger number of people became eligible to receive home healthcare services after a lawsuit by Medicare patients and home care providers resulted in a different interpretation of Medicare rules. By 1990 Olsten Home Health Care had 75 offices and was a profitable $100 million business. To accelerate growth it then acquired Upjohn Health Services Inc. for $58 million in December 1990, a deal that came at a very reasonable price and effectively tripled the size of the company, making it the second largest home healthcare provider in North America. Not only did Olsten Home Health Care add 200 offices and more than $180 million in revenues, it gained a footprint across North America. Prior to the acquisition Upjohn had been losing money, but within three months the operation was profitable. The combined company now operated under the name Olsten Healthcare.

Olsten Corporation viewed the home healthcare field as a major growth area, due in large part to the aging of the American population. Olsten Healthcare became the largest provider in May 1993 with the $525 million stock acquisition of publicly traded Boston-based Lifetime Corporation. Lifetime had begun to struggle a year earlier and Olsten Corporation attempted to buy a Lifetime temporary-worker business in England, Office Angels, but with no success. Then in March 1993, Lifetime received an unfriendly takeover bid of $23.50 per share from Abbey Healthcare Group, Inc. Lifetime brusquely rebuffed the offer, yet a month later announced that it was putting itself up for sale. Within a month Olsten Corporation and Lifetime reached a deal that called for a price of $33 per share and the assumption of $160 million in debt. The Lifetime acquisition brought with it 400 offices and boosted Olsten Healthcare's revenues from $338 million in 1992 to $1.2 billion. Moreover, Olsten Corporation picked up the Office Angels business it had originally wanted, providing the parent company with a presence in the European market.

COMPANY PERSPECTIVES

Gentiva's mission: To improve quality of life and patient independence through the delivery of compassionate care and uncompromising service.

LAUNCHING CARECENTRIX: 1995

In 1995 Olsten Healthcare launched CareCentrix to serve as an ancillary care benefit manager for insurers and government-related managed care payers. A year later, Olsten Healthcare entered the highly profitable home infusion business with the acquisition of Quantum Health Resources for $300 million in stock and assumed debt. Home infusion was especially important because of sharp reductions in the amount of money Medicare would pay for home nursing visits, changes that went into effect in October 1997. Home infusion was one of the few services to be reimbursed under the old payment schedule. However, Olsten Healthcare soon found itself saddled with a whistleblower lawsuit against Quantum, alleging that it overcharged Medicare, Medicaid, and a third health plan for services to hemophiliac patients from 1990 to 1997. Olsten Healthcare elected to settle the matter by agreeing to pay $4.5 million in October 1997. It was not the first time Quantum had courted trouble. In 1995 it settled similar claims with the state of California, and continued to be under investigation by the New Mexico attorney general. Olsten was itself coming under scrutiny at this time related to the Medicare billing practices of the Florida home healthcare operations of Columbia/HCA Health Corp. Olsten Healthcare had actually sold the 80 Florida offices to Columbia in 1993 but continued to operate them. That transaction became the focus of a second probe by the U.S. Justice Department, which would charge that Columbia bought the assets on the cheap and then inflated the fee it paid Olsten Healthcare subsidiary Kimberly Home Health Care Inc. to manage them in an effort to bilk Medicare. While the federal probe continued, Olsten Healthcare bought back the business for $34 million in 1998. Then, in July 1999, it reached a settlement with the Justice Department by agreeing to plead guilty to three felony charges, including conspiracy, mail fraud, and violation of the Medicare antikickback statute, and paying more than $10 million in criminal fines and almost $51 million as part of a civil settlement.

FOUNDING OF GENTIVA HEALTH SERVICES AT THE START OF THE 21ST CENTURY

Not only did cutbacks on Medicare payments hurt Olsten Healthcare, the parent company also was encountering problems in the late 1990s. Falling profits and a slumping stock price led to a management shakeup at Olsten Corp. in early 1999. Later in the year the company agreed to merge its staffing and information-services business with Adecco S.A. As a result, it decided to split off its healthcare assets as an independent public company, which in 2000 took the name Gentiva Health Services, Inc. It legally broke away from Olsten Corp. in March 2000.

The first order of business for Gentiva's chief executive officer, Edward A. Blechschmidt, was to narrow the company's focus. It started out with four separate businesses: home healthcare, specialty pharmaceutical services distributing biopharmaceutical products, and one U.S. and one Canadian healthcare staffing operation. His goal was to sell off some of these assets and eliminate Gentiva's $120 million debt load. First he sold the U.S. staffing business for $66.5 million to Intelistaf Holdings Inc. A month later, in October 2000, he sold 81 percent of the Canadian staffing unit to Bayshore Health Group. This left Gentiva straddling two core businesses, home healthcare and specialty drugs, which together generated sales of $1.36 billion. For the year 2000 the company lost $104.2 million, but this was the result of writing off $119 million in accounts receivable. More important, Gentiva cut $100 million in debt and entered 2001 with a clean balance sheet. While revenues were essentially flat in 2001, totaling $1.38 million, the company recorded net income of $21 million in 2001. Home health services revenues dropped slightly in 2001 to $729.6 million, due to the company closing a dozen nursing branches and making the switch to Medicare's Prospective Payment System. The specialty pharmaceutical services business grew sales from $699.3 million in 2000 to $739.3 million in 2001, yet management decided to sell off this unit at the end of the year. In June 2002 when the deal closed, Gentiva sold the business to Accredo Health Inc. for approximately $415 million, split almost equally between cash and stock. Concurrent with the sale, Blechschmidt turned over the CEO and chairmanship posts to Ronald A. Malone, who had been with the company since 1994, serving as president of Olsten Staffing Services before it was divested.

No longer a hybrid company, Gentiva now devoted its attention to the home health services field. A major reason for selling off the pharmacy division and focusing on home healthcare was that the baby boom generation was reaching retirement age. According to the U.S. Census Bureau, the number of people aged 65 and older numbered 34.9 million in 2000. By 2020 that number was expected to grow by more than 50 percent to 53.7 million. Moreover, new medicines and technology allowed an increasing number of conditions to be treated at home rather than at a medical facility. There was also an increasing preference to recover and age at home. Added together it meant a steadily growing demand for the services Gentiva had to offer.

Gentiva continued to expand in 2003, completing a minor acquisition, buying Houston-area First Home Care, a five-branch home healthcare agency. More significant were internal developments, including the expansion of special programs, such as Gentiva Orthopedic Services, providing postoperative care for patients with joint replacements and other orthopedic needs, and Rehab Without Walls, a program to help patients recover from neurological problems at home. Gentiva made technological advances in 2003, deploying a new software-based scheduling system called Case-Match, which connected patients to the most appropriate caregiver based on skills, geography, and availability. For the year, revenues improved 5.9 percent to $814 million. Net income approached $26.5 million.

KEY DATES

1950:: Olsten Corporation is founded as a temporary staffing company.
1971:: Olsten begins providing home healthcare staffing services.
1990:: Upjohn Health Services Inc. is acquired.
1993:: Lifetime Corporation is acquired.
2000:: Olsten spins off its healthcare assets as Gentiva Health Services, Inc.
2002:: The Special Pharmaceutical Services division is sold.
2006:: Healthfield Group is acquired.

Revenues continued to grow in 2004 to $846 million. CareCentrix was reconfigured and its network of providers expanded, and the unit also signed an important contract with TriWest Healthcare Alliance, a U.S. Department of Defense contractor that administered the TRICARE managed healthcare program in 21 states, covering more than two million active duty and retired military personnel and their families. In 2005 Gentiva recorded sales of more than $868.8 million and net income of $23.4 million.

Gentiva branched into the hospice field in 2006 with the $454 million cash and stock acquisition of Atlanta-based Healthfield Group. In one stroke Gentiva had become one of the top ten providers of hospice care, but Malone made it clear that Gentiva planned to aggressively grow the business in the markets where it already provided home healthcare services. Moreover, federal reimbursement levels had become more favorable, making it quite likely that in the years to come Gentiva would become even more aggressive on the acquisition front.