Home health care often is cast as a “mom-and-pop” industry staffed by nurses who visit Grandma’s house to check her blood pressure. But that may change with the coupling of Abbey Healthcare Group and the Homedco Group.
As a $1 billion company in a business dominated by smaller players, the merged company, Costa Mesa, CA-based Apria Healthcare Group, hits the ground with sufficient market muscle. But the strong-willed, disparate CEOs of both Abbey and Homedco will retain management roles in the new entity, and some observers wonder whether they will be able to work together.
Downplaying the notion that chemistry is a problem, Abbey’s Timothy Aitken and Homedco’s Jeremy Jones were models of congeniality during a recent interview, nodding silently in assent to each other’s pronouncements. Among the headlines: Jones will handle day-to-day operations as chairman and CEO, while Vice Chairman/ President Aitken focuses on marketing. Larger firms will fare well as cost-conscious managed-care providers seek one-stop shopping with full-service, home-care vendors. Internal cost efficiencies, too, helped compel the Homedco/Abbey combination.
“The merger can produce savings of $50 million a year right away,” says Aitken, who predicts Apria will be a $5 billion business in five years. In the session’s single difference of opinion, Jones politely takes exception to the revenue forecast. “That answer probably would not have rolled off my lips,” he says. “But even if we only do $3.5 billion, that ain’t all bad.”
The driving force behind the home health-care business is simple: As doctors, hospitals, drug firms, and managed-care providers scramble to cut soaring healthcare costs, it’s cheaper to treat many types of ailments outside hospitals. “Home care transfers overhead from the hospital to the patient’s home,” says Ann Logue, an analyst with San Francisco-based Volpe, Welty & Co., who expects the $22 billion home health-care market to expand at a healthy 10 percent clip this year.
With a client list that includes HMOs and insurers such as United HealthCare, Pacificare, Prudential, Aetna, and Metropolitan, Apria seems poised to capitalize on such growth through each of its major businesses: respiratory therapy, infusion therapy (drug injections and hydration), and medical equipment.
While the battle to slash Medicare spending—more than a third of Apria’s business—is just revving up on Capitol Hill, analysts see the company riding out the storm to do around $1.1 billion in revenues this year. That would make it the market leader, ahead of the $1 billion Kimberly QualityCare division of Olsten Corp. and $450 million Coram Healthcare, which recently failed to acquire Lincare Holdings after its stock price hit the skids.
Precise market-share calculations are complicated, because most players don’t compete head-to-head on all fronts. But consolidation seems logical as companies seek to provide a breadth of health-care services. Indeed, prior to the $1.2 billion merger, both Homedco and Abbey gobbled up dozens of smaller firms. While 60 percent of home-care services are still being provided by mom-and-pop companies, Jones believes the major, national companies have plenty of room to grow.
“I think they are building a very lean machine to take on the challenge of cost pressures,” says Vivian Wohl, managing director of San Francisco-based Robertson, Stephens & Co. “They will be well-positioned in the home health-care industry of the future,” with far fewer major players.
Former Abbey CEO Aitken, 50, is a brash investment-banker-turned corporate doctor and the grandson of British newspaper magnate Lord Beaverbrook. In an interview with CE last year, he caustically expounded on his decision to terminate 1,000 employees when he joined Abbey in 1991. Aitken then asked those remaining to give up bonuses, take pay cuts, postpone vacations, and work overtime in an effort to recover from a 1990 loss of $13.8 million. When the restructuring job was done, and Aitken assumed the chairman’s position, he pulled the plug on the CEO who succeeded him.
By contrast, Jones, 53, is a conservative Southern Californian who once sold medical equipment out of his station wagon. Though generally reserved, he does have his peevish side. Following a 1993 CE profile, Jones took exception to his portrayal as a critic of the Clinton health-care plan. The result was a polite, but tenacious, letter to the editor.
Negotiating the merger, the executives once found themselves at loggerheads. “We had a disagreement over performance,” says Jones. “Abbey had taken some write-offs in the second quarter of 1994, and we found it hard to believe the company could achieve the numbers Tim projected.”
Abbey eventually hit the mark, and Jones pulled the trigger last June.
For now, an atmosphere of mutual respect seems to prevail. That’s perhaps because Aitken and Jones have a history of working together. “When I got involved with Abbey and the home health-care business, one of the first people I went to see for advice was Jerry,” Aitken says.
“Jones is a mild-mannered professional health-care executive, who appears to have less of an ego,” says Thomas Snow, an analyst at New York-based Buckingham Research. “Aitken is an outspoken professional dealmaker who probably won’t be at Apria for the long haul.”
While Aitken typically wears the black hat, says Volpe, Welty’s Logue, there should be no misunderstanding:
“Jerry Jones is no pushover,” she warns. “No one is going to run roughshod over him.”
JEREMY M. JONES,
CHAIRMAN AND CEO, APRIA
Born: Bel Air, MD.
Education: BBA, 1963 University of Iowa (marketing major).
Family: Wife, Pat. Children: KC, 27, and Andy 25.
Boards: On Assignment, National Association of Medical Equipment Services, National Association for Infusion Therapy. First job: Sales representative for American Hospital Supply. Outside Interests: Travel, golf.
Last book read: “Secrets of the Street,” by Gene Marcia’. Greatest Influence: His family.
Philosophy: “Have respect for others. Always concentrate, first, on what is most important and that which will produce the greatest result.”
Car: 1986 Mercedes Benz 560 SEC.
Biggest challenge: To make sure 1+1 becomes 11 (the merger of Abbey and Homedco).
TIMOTHY M. AITKEN,
VICE CHAIRMAN AND PRESIDENT,
APRIA HEALTHCARE GROUP
Born: United Kingdom.
Education: Repton, England, the Sorbonne in Paris, and McGill University in Montreal. Family: Wife, Sally. Children: Natasha, 23; Brookie, 21; Anoushka, 20; Theodore, 19; Charles, 16.
Boards: Aitken Hume International, Leisure Time international; Securities Centres, plc.; TV-am.
First job: Junior reporter on London Evening Standard.
Outside Interests: Sailboats, politics, and tennis.
Greatest Influence: Lord Beaverbrook, Aitken’s grandfather.
Last book read: Margaret Thatcher’s autobiography and “Churchill: A Life,” by Martin Gilbert.
Guiding principle: Family motto—”Res Mihi Non Me Reybus”— designed by his father’s godfather for his grandfather, means “things for me, not me for things.”
Greatest mistake: “I was 19 years old. At a formal luncheon, I wanted to tell my grandfather how much I appreciated all that he had done for me. I was inhibited about speaking out, and was constantly being interrupted. I thought I would have the opportunity later in private, but two weeks later my grandfather died.”
Best decision: Moving to U.S. at the end of the 1980s.