ATC Healthcare Inc.

1983 Marcus Avenue, Suite E122
Lake Success, New York 11042
U.S.A.
Telephone: (516) 750-1600
Fax: (516) 750-1750
Web site: http://www.atchealthcare.com

Public Company
Incorporated: 1971 as Staff Builders Inc.
Employees: 194
Sales: $148.7 million (2003)
Stock Exchanges: American
Ticker Symbol: AHN
NAIC: 621610 Home Health Care Services; 561329 Temporary Help Services

ATC Healthcare Inc. provides temporary staff to health care facilities and private patients throughout the United States. Its 67 offices are located in 26 states and supply a wide variety of medical personnel not only to hospitals, clinics, mental health facilities, and nursing homes but also to physician practice management groups, managed health care facilities, insurance companies, schools, community health centers, and in-home patients. Among ATC's pool of health care professionals are registered nurses, licensed practical nurses, and certified nursing assistants, as well as nurses in various specialty areas such as critical care, neonatal care, and mental health care. Clients also have access to allied health professionals such as speech therapists, occupational therapists, physical therapists, and radiology technicians. ATC also provides a broad range of administrative staff such as administrative assistants, medical records clerks, collection, and personnel claims processors. ATC Travelers, the company's travel nurse program, provides long-term care givers across the nation.

A Medical Temp Service in the 1970s–80s

ATC Healthcare Inc. descended from Staff Builders, a New York City firm that specialized in providing temporary help in the medical field. Staff Builders began franchising its agencies in 1971. By the time it finally incorporated in 1978, it had 72 offices located through the United States. Staff Builders offices in New York and other large cities provided mainly in-home care for the sick and elderly. In rural areas, the company's temps were frequently used to staff hospitals, particularly where unions had not made inroads. By the mid-1980s, Staff Builders workers were also caring for growing numbers of AIDS patients.

In August 1986, it agreed to be acquired by a competitor, Tender Loving Care Health Care Services Inc. (TLC) of the New York City suburb Lake Success. The deal called for TLC to take over Staff Builders in exchange for approximately $44 million in TLC common stock.

Tender Loving Care had been founded in 1977 and went public in 1983. Staff Builders had lost $2.2 million the previous year, but its value at the time, strategically at least, was evident from the bidding war that erupted when the TLC takeover was announced. A month later, Hospital Capital Corporation, a U.K. developer of hospitals and health care facilities, made an offer estimated at $42.4 million, including over $10 million in cash. Staff Builders rejected the offer, concluding that ownership by Tender Loving Care would be better for shareholders. No sooner had the firm declined the British offer than another temporary help firm, the Norrell Corporation, attempted to purchase the company for about $33.6 million. When Staff Builders rejected the offer, Norrell launched a hostile takeover attempt, purchasing 610,000 Staff Builder shares, almost 20 percent of the company's outstanding stock. It announced that when stockholders met to vote on the TLC merger, Norrell would vote against it. Despite Norrell's opposition, however, the acquisition by Tender Loving Care was approved in January 1987.

The combined company, then known as Tender Loving Care Services, Inc., acquired another temp business, Professional Care Inc. in September 1987. The price for the 11-branch firm was approximately $3 million in cash and notes, some $9 million less than CarePlus, Inc. had been willing to spend for it—until CarePlus learned that Professional Care was under indictment for Medicare fraud in New York state. Tender Loving Care's president, Ephraim Koschitzki, was not concerned about the legal problems. His eye was on the $14 million he believed the new offices—located in Florida, New Hampshire, Texas, Michigan, Ohio, and Wisconsin—would add to TLC's annual revenues. Meanwhile, Tender Loving Care had been expanding its temp offerings into non-medical areas. To reflect the new focus, the company changed its name from Tender Loving Care Health Care Services to Staff Builders Inc. in November 1987. By that time, the company employed some 20,000 nurses in nearly 150 offices in 28 states. It had annual sales of $95 million, more than three times what it had reported in 1986.

However, rather than doubling its revenues by 1988, as the firm's leadership predicted, sales dropped nearly 20 percent. Staff Builders experienced new setbacks the following year as it attempted to expand its medical services division, an arm that accounted for less than 40 percent of the firm's annual sales. The downturn was exacerbated by the costs incurred by the closing of a number of offices and the settlement of a lawsuit with a former franchisee. In December 1989, the company reported a fourth quarter loss of $30.4 million. Until then, profits had been running on a shoestring. The year-end figures showed a total loss of $29.6 million.

By the end of 1989, shareholders were decidedly unhappy with the direction the company was taking. Management began entertaining offers to purchase Staff Builders. Instead, in early 1990, Staff Builders laid off about 10 percent of its 1000 employees and sold 125 of its personnel services offices to OTI Services for $4 million. The sale marked a change in Staff Builders' business model—that of narrowing its focus to home health care—a move that some of its biggest competitors, such as Olsten Corporation, had already made. Staff Builders also introduced a program under which the bulk of its branch offices would be franchised rather than company owned. By spring 1990, it had opened 25 franchise branches. With changes underway and its stock price still depressed, rumors circulated that Staff Builders would be targeted for a takeover.

Ups and Downs in the Early 1990s

By the summer of 1991, Staff Builders was providing staff for home health care almost exclusively. Despite the blossoming of the home care market, the company's 1990 revenues had fallen nearly 9 percent from $186 million to $170 million, and the firm was one of two home nursing companies in the country whose revenues dropped that year. The company's new CEO, Stephen Savitsky, tried to explain the decline as the result of the sale of one of the company's units. A larger problem was Staff Builder's accounting systems. When the change to home care was implemented, the system was not sophisticated enough to process the additional paperwork and as a result scores of bills went uncollected.

On the positive side, by February 1992 Staff Builders had won Medicare certification—required by most large insurance companies of health care providers—for 37 of its facilities and hoped all of its branches would be certified by the end of the year. Staff Builders continued to develop its franchise operations. About 70 percent of its branches participated in the new program under which local operators were offered a percentage of gross profits on non-Medicare business in exchange for an equity investment. Staff Builders sought new franchisees on an ongoing basis. To finance the expansion, the firm floated a stock issue of two million shares, which raised about $11.6 million in capital for the firm. However, the new stock and warrants eventually contributed to a dilution of its stock value a few years later.

As fiscal 1992 ended, it looked as if Staff Builders had turned a corner. It reported a profit of $352,000 for the year after a loss of $5.6 million the year previous. CEO Savitsky attributed the turnaround to the new focus on home care, an area in which profit margins were higher. This segment accounted for nearly 80 percent of Staff Builders' business in 1992, double the year before. The company had also installed new computer billing systems and became involved in the area of mental health care with the establishment of the At Home Mental Health Program. Most importantly, for all its administrative problems, Staff Builders' reputation as a provider of quality care had never been questioned.

By June 1993, Staff Builders was the nation's fourth largest provider of home health care, an industry with estimated yearly revenues of $15 billion. The company had grown to 107 offices in 30 states, with 62 of its agencies franchises and 45 company owned. The company was licensing new franchises at a rate of about two each month, and it had between 30 and 50 applicants for new franchises in cities into which it planned to expand. Nurses comprised more than half of the company's franchisees.

Once Staff Builders got back on its feet financially, it began acquiring other home health care operators. In July 1993, it bought Albert Gallatin Visiting Nurse Association Inc., a company with eight offices in West Virginia and western Pennsylvania. Staff Builders paid approximately $1.9 million, most of which went toward the assumption of Albert Gallatin's debt. The additional agencies would eventually increase Staff Builders' annual revenues by $30 million. As its revenues climbed and its share price remained depressed, Staff Builders abruptly became a Wall Street favorite. Adding to its attractiveness, home health care was expected to explode as the number of senior citizens and AIDS patients increased. Moreover, it looked like the Clinton administration might enact sweeping health care reforms that could only help companies like Staff Builders, which were seen as keeping overall health costs down. All told, analysts predicted 15 to 20 percent growth rates at the company for at least five years.

Company Perspectives:

ATC's organizational philosophy combines the expertise of a major corporation with locally managed offices that promote creative responses to individual market demands. Supporting this mission are goals to constantly develop new services tailored to meet the needs of clients, employees and specific patient populations.

In July 1994, when Staff Builders agreed to purchase ATC Services Inc. for $8.7 million, it had grown to the third-largest company in its industry. ATC became a wholly owned subsidiary of Staff Builders and continued to be based in Atlanta,Georgia. ATC's 13 new offices in seven states brought Staff Builders annual revenues estimated at approximately $25 million. Four months later, ATC acquired an additional seven offices spread across five states.

By December 1994, when Staff Builders moved its headquarters to a larger building, its home health care services accounted for 91 percent of its annual revenues. The company was growing at a rate of about 20 percent a year. It was making a return to hospital staffing, a sector it had largely abandoned for two years. A year later, as 1995 ended, Staff Builders had a network of some 170 branches, including 126 franchises, located in 37 states. It employed about 2,200 full-time administrative staff and boasted a pool of approximately 30,000 care givers, about 34 percent of whom were nurses and other licensed medical personnel. About 12,000 of its temporary pool was on assignment at any given time. Staff Builders made a number of acquisitions in 1995, including MedVisit Inc., Accredicare Inc., CareStar Inc., All Care Inc., and Professional Skills Inc.

Legal Difficulties in the Mid-1990s

A string of legal difficulties beset Staff Builders beginning in the mid-1990s. In May 1995, an African-American resident of New Haven, Connecticut, complained to the Department of Health and Human Services (HHS) that the company had ended service after she moved into a housing project that was barred by the company's guidelines from being visited by its personnel. Such redlining was in violation of the Civil Rights Act. As a result of the complaint, the State of Connecticut and HHS signed an agreement to deny Medicaid payments to firms that practiced redlining. Although Staff Builders maintained it had revised its guidelines, HHS gave the company 60 days to change its practices or face the loss of Medicare and Medicaid reimbursement.

In the fall of 1995, the U.S. Attorney for the Eastern District of Pennsylvania brought charges against Staff Builders' subsidiary Albert Gallatin, alleging that the company had engaged in Medicare fraud between 1987 and 1989. Staff Builders denied the extent of the over-billings Gallatin was supposed to have made and entered into arbitration with the government over the matter, a process that dragged out over the next five years. Following an audit of Staff Builders' Medicare submissions, the HHS Inspector General brought new charges of irregularities in September 1998. The firm was charged with over-billing Medicare by approximately $3.5 million in 1994. In addition to receiving from the government $2.5 million for treatments not covered by Medicare, the company was alleged to have charged more than $750,000 for, among other things, the lease of Jaguar and Cadillac automobiles for the personal use of Staff Builders' executives. Staff Builders announced its intent to appeal the decision, maintaining the charges were the result of misunderstandings caused by a differing interpretation of Medicare laws by HHS officials. Settlements related to the mis-billings resulted in net losses of $45.4 million taken in the third quarter of Staff Builders' 1998 fiscal year.

In June 1997, Staff Builders' subsidiary ATC Healthcare Services acquired medical temp firm Nursing Management Services (USA) from the Premier Health Group plc of the United Kingdom. NMS was Premier's American arm. The purchase marked Staff Builders' entrance into the so-called travel nurse field, in which long-term nursing care is provided anywhere in the country, primarily to at-home patients. ATC purchased NMS for $1.5 million in cash and future considerations based on performance. As part of the agreement, a new company was formed, Premier Health Group (USA), to manage the unit resulting from the merger of NMS and ATC's nursing division. The new management company was to be jointly owned, with Premier plc controlling 51 percent.

In early 1999, Staff Builders launched a major reorganization, spinning off its home health care subsidiary Tender Loving Care. Under the new arrangement, TLC became an independent, separately traded company that specialized in providing staff for home health care. Under the plan, Staff Builders' shareholders received one share of TLC stock for every two Staff Builders shares held. The TLC subsidiary itself had just been formed weeks before Staff Builders' board of directors approved the spin-off plan. After the TLC spin-off was completed in October 1999, Stephen Savitsky, Staff Builders' chairman and CEO, assumed the same positions at TLC.

Key Dates:

1971:
Staff Builders begins franchising temporary medical services.: 1978:
The company incorporates.: 1986:
Staff Builders merges with Tender Loving Care Health Care Services Inc. (TLC).: 1987:
TLC changes its name to Staff Builders Inc.: 1989:
The company begins focusing on home health care services.: 1999:
The company spins off Tender Loving Care home care as a subsidiary.: 2001:
The company changes its name to ATC Healthcare Inc.: 2002:
ATC begins recruiting nurses from India and South Africa.

The costs of the spin-off coincided with a number of other major costs that contributed to another year of losses in fiscal 2000. Among additional factors for the shortfall was a major drop in revenue from Staff Builders' information technology temp services division, which was sold in late 1999, and expenses incurred from the relocation of its subsidiary ATC Healthcare Services to New York from Georgia. The company had run into new legal problems in July 1999 when the State of Massachusetts determined that Staff Builders had billed the state $4.7 million in expenses in the early 1990s that should have been paid by the federal government's Medicare program. In the wake of the Massachusetts case, the State of Connecticut launched its own audit of a decade's worth of Staff Builders charges. As a result, the firm had to set aside $11 million in capital for state liability payments. On top of its state problems, the federal government claimed that the company still owed it as much as $17 million. All this came at a time when the company was in default of its bank agreement and had had its credit facility reduced from $50 million to $40 million. In consideration of these realities, auditor Deloitte & Touche, LLP, in Staff Builders' 1999 annual report to the Securities and Exchange Commission, expressed "substantial doubt about the ability of the Company to continue as a going concern."

A New Name for the 2000s

Staff Builders did survive, however. In August 2001, the company once again adopted the name of a subsidiary when the firm became ATC Healthcare, Inc., a modification designed to show the change wrought by the TLC spin-off. The firm had begun once again to concentrate on institutional clients rather than home patients. After the name change, all the company's locations operated under a single corporate banner—ATC Healthcare Services, Inc. By the end of 2001, ATC had 63 locations spread across 25 states. Every week ATC, placed some 3,500 nurses drawn from a pool of more than 10,000 health care professionals in 50 areas of specialization. Revenues increased by 20 percent in 2002, a real turnaround for the once-troubled company. The change was reflected in ATC's share price, which climbed to $2 from lows around $0.20 in January 2001.

In January 2002, ATC completed the purchase of Direct Staffing Inc., its largest franchise, with operations on ATC's home ground of New York City and Long Island. ATC paid approximately $30.2 million to its owners, a son and two sons-in-law of ATC's CEO Stephen Savitsky. ATC said it made the purchase in order to reduce royalty payments. The company made other purchases in 2002 as well. In June, it acquired Staff One Healthcare of Tucson, Arizona, for $2 million. The following October, it bought All Nursing of Houston Texas for $200,000.

In August 2002, ATC announced partnerships with the Nurse Alliance Group and Medinnel Inc. that would assist in the recruitment of foreign nurses to ease the acute shortage of nurses in the United States. Fifty nurses from India and some 200 from South Africa were hired for the company's travel nurse arm. They were expected to add between $20 and $25 million to ATC's annual revenues. Two months later, the company assumed full control of Nursing Management Services, its travel nurse division, which was later renamed ATC Travelers. In June 2003, ATC signed an agreement with Travel Choice Staffing of Tampa, Florida, to establish what it called a traveling radiology division that would supply radiology workers where needed throughout the United States.

Principal Subsidiaries

ATC Healthcare Services, Inc.; ATC Staffing Services, Inc.; ATC Funding, LLC.

Principal Competitors

AMN Healthcare; Cross Country Healthcare; Gentiva Health Services, Inc.; Medical Staffing Network; Nursefinders.

ATC Healthcare Inc.

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ATC Healthcare Inc.

1983 Marcus Avenue, Suite E122
Lake Success, New York 11042
U.S.A.
Telephone: (516) 750-1600
Fax: (516) 750-1750
Web site: http://www.atchealthcare.com

A Medical Temp Service in the 1970s–80s

Ups and Downs in the Early 1990s

Company Perspectives:

Legal Difficulties in the Mid-1990s

Key Dates:

1971:
Staff Builders begins franchising temporary medical services.: 1978:
The company incorporates.: 1986:
Staff Builders merges with Tender Loving Care Health Care Services Inc. (TLC).: 1987:
TLC changes its name to Staff Builders Inc.: 1989:
The company begins focusing on home health care services.: 1999:
The company spins off Tender Loving Care home care as a subsidiary.: 2001:
The company changes its name to ATC Healthcare Inc.: 2002:
ATC begins recruiting nurses from India and South Africa.