Extendicare Health Services, Inc.

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Extendicare Health Services, Inc.

3000 Steeles Ave. E., Suite 700
Markham, Ontario L3R 9W2
Canada
(416) 470-5547
Fax: (416) 470-5588

Wholly Owned Subsidiary of Crownx Inc.
Incorporated: 1968 under a federal charter of the Canadian Parliament as Pendexcare Ltd.
Employees: 10,000
Sales: C$807 million (US$675.48 million)

Extendicare Health Services, Inc., a wholly owned subsidiary of Crownx Inc., specializes in long-term health care to the elderly through its operations of nursing and retirement centers throughout North America. Extendicare is the largest provider of nursing center care in Canada and, with several operating subsidiaries in the United States, ranks among the largest care providers on the North American continent. The company owns or operates clinical laboratories, multiphasic screening and testing units, and nursing centers in both countries. Through its divisions and subsidiaries, Extendicare provides a broad range of related services, including home care and temporary staffing services for health care institutions, health care consulting, hospital management and development, institutional pharmacy services, and management services of retirement centers. Through a minority share holding in a health care services company, Extendicare also operates nursing centers and a hospital in the United Kingdom.

Crownx Inc. was incorporated in 1968 with a federal charter under the name Pendexcare Ltd. to operate as a supplier of health care services in Canada. By the end of 1968, the company had changed its name to Extendicare (Canada) Ltd., then to Extendicare Ltd. in 1974, and finally to Crownx Inc. in 1983. Its sole focus was on health care services until it diversified into financial and insurance services, beginning in 1980 with the purchase of 35 percent of outstanding shares of Crown Life Insurance Company from Burns-Jodrey Group. Crownx’s interest in Crown Life Insurance increased to over 94 percent at one time, but in 1991 it sold part interest in the company to hold only 54.6 percent interest. Aside from Extendicare, Crown Life Insurance operates as Crownx’s only other subsidiary.

In 1983 all of Crownx’s health care services and related divisions were reorganized under the Extendicare name as a subsidiary. Therefore, Extendicare Health Services Inc. traces its origins directly to the 1968 incorporation of Pendexcare and includes in its history the expansion of services through acquisitions and mergers in the 1970s and 1980s under Extendicare Ltd.

Throughout the 1970s Extendicare expanded operations through acquisitions in different parts of Canada and the United States. In 1971 the company acquired 51 percent of a newly formed business—Extendicare (Quebec) Ltd.—and increased its holdings in this new company to 60 percent by 1974. In 1973 Extendicare acquired all the assets of Royal Drug Inc. and Western Radiological Facilities Ltd., which provided the company with entry into pharmaceutical and radiological services, respectively. The company further expanded operations in 1974 into other areas of health care with its acquisitions of two hospital supply services companies, Standard Hospital Supply Ltd. and Hartz Standard Ltd., the latter of which was sold off five years later.

In 1976 Extendicare acquired majority interests in United Health Maintenance, Inc., and Medco Centers (Mississippi), Inc. Extendicare later increased its ownership in both companies to 100 percent. In 1978 it branched out into the fields of laboratory testing and clinical screening through the acquisition of Professional Clinical Laboratories, Inc. The next year Extendicare established Extendicare Development and Management Ltd. as a health care consulting business group. This division was also responsible for providing staffing and management to several hospitals in Alberta, Toronto, and Newfoundland. At the same time, Medco Centers, Inc., became a subsidiary of United Health Maintenance Inc.

The corporation decided to diversify beyond health care in 1980 and expand into insurance with its purchase of part of Crown Life Insurance. Following this diversification, management instituted several corporate changes. Para-Med Health Services was established to provide nursing and special care service in private homes to residents in Ontario, Alberta, and British Columbia. Para-Med also provides temporary professional staff to clinics and institutions in those provinces during crisis or peak-load periods.

In 1982 Extendicare began to broaden its base in the nursing home care field through acquisitions of existing facilities in both the United States and Canada. By 1983 it had purchased all shares of Villacentres Limited, which owned and operated nine nursing centers, operated four hotels, had interests in oil and gas ventures through a minority shareholding, and was involved in real estate development in the United States and Canada. In addition, Extendicare purchased the assets of Tri-Medical Professional Managers, Inc., in 1985 to strengthen its management services division. It also acquired several other nursing home facilities.

The 1986 acquisition of Union Prescription Centers, Inc., gave Extendicare a chain of more than 110 retail pharmacies in the United States, a durable medical goods supplier, and a United States-based software company, Multiplications Software, Inc. The pharmacy chain was transferred into the United Health subsidiary in the United States.

Aside from its continued practice of procuring nursing centers in the United States and Canada, Extendicare began a four-year, C$25 million investment in 1987 to expand and renovate nine nursing centers in Alberta. Funded by an Alberta capital funding assistance program, the project also served to expand services in nursing center management and home care.

In 1990 Extendicare acquired five nursing centers and one retirement center in the United States and sold four of its nursing centers in Ontario to Royalcrest Lifecare Group for a profit of about C$15 million. The next year, in an effort to expand the usage of its nursing centers in the United States, Extendicare implemented therapy and rehabilitation programs, which are administered in its centers. The therapy programs provide therapy clinics for residents and community members, and the rehabilitation program is for recovering hospital patients who require short-term health care before returning home.

Extendicare operated 210 nursing and retirement facilities in Canada and the United States in 1992, with more than 70 percent of the facilities located in the United States. With the exception of Ontario, no more than 10 percent of the company’s facilities are located in any one state or province. Total resident capacity in the early 1990s reached more than 24,000, with an occupancy rate averaging more than 94 percent since the mid-1980s.

In both the United States and Canada, nursing centers are regulated by various federal, provincial, state, and local authorities and are subject to annual renewal of licenses. In the United States regulations are imposed largely through eligibility requirements for various federally funded programs. In Canada regulations pertain to the adequacy of accommodation standards, equipment, and personnel of nursing centers. (Regulations of adequacy do not pertain to retirement centers, which provide a more independent atmosphere for elderly people who maintain a certain degree of self-sufficiency but need assistance with meals and laundry services.) Extendicare participates in a voluntary accreditation program. Surveys are used by the Canadian Council on Health Facilities Accreditation to renew accreditation for one to three years. Since its participation in the program, all Extendicare centers in Canada have operated as accredited facilities.

On the average, about 85 percent of Extendicare’s revenues are generated by the nursing and retirement center operations with more than 65 percent of the revenues coming from facilities in the United States. Payment for Extendicare services in the United States can come directly from the patient or through one of two government-funded programs. Medicare provides reimbursement with federal funds for extended care services for residents of skilled nursing facilities. Medicaid is state administered and provides state and federally funded medical assistance to eligible people. Approximately 75 percent of Extendicare’s United States revenues are from Medicaid, with 20 percent from private payments, and the remaining 5 percent from Medicare.

In Canada the provincial governmental authorities establish daily rates for each nursing center for three levels of care and three types of accommodations. Accommodations include standard, semi-private, and private wards. Governmental payment on the resident’s behalf generally covers the full amount of standard and semi-private wards in nursing homes. Although payment is largely made by the provincial governments, any remaining amount is paid by the resident. Government payment for care is also adjusted for the level of care required. Residential care, for instance, provides meals, laundry, and some supervision of medications. It is available in boarding homes, retirement homes, and homes for the aged. Extended care, provided in homes for the aged and nursing homes, allows for at least one and one-half hours of nursing and personal care per patient per day. Chronic care provides frequent supervision, skilled nursing care, medical management, and specialized services in a hospital setting.

Extendicare has divided its operations geographically among its principal subsidiaries. In Canada home health care services are provided through Para-Med Health Services through more than 53 branches. Client support services include nursing, household support, occupational therapy, physiotherapy, and assistance for disabled children. Other services such as health care consulting and hospital management and development are administered directly by Extendicare and its divisions.

In the United States Extendicare provides institutional pharmacy, medical supplies and services, and home care supplies such as nutritional feeding apparatuses and home medical equipment through business units of its United Health subsidiary. Nursing centers operate under the trade name of Unicare Health Facilities. Many operational changes were implemented by Unicare in the early 1990s, including development and expansion of health care programs in an effort to comply with the Omnibus Budget Reconciliation Act passed by the United States Congress. This federal bill contains revised provisions for reforming nursing centers.

Community HealthCare Services, another trade name of United Health, provides medical equipment to homebound patients; urological, enteral, ostomy, and oxygen supplies to long-term care facilities; and specialized services such as professional nursing center in-service programs and 24-hour emergency services.

Extendicare’s subsidiary in the United Kingdom is International Care Services (ICS). Through its one-third interest in ICS, Extendicare provides health care management consulting and operates six nursing centers and a hospital. Growth is expected to continue in this market and management expects to increase the company’s interest in ICS as well as expand in the United Kingdom through acquisitions.

Extendicare and its health care subsidiaries are responsible for approximately 30 percent of Crownx’s annual revenues. Since its reorganization in the early 1980s, Extendicare’s operating profit percentages against its revenues were higher than that of Crown Life Insurance and the company’s financial services group. In 1991 Extendicare’s profits against revenues were 8.5 percent for services in Canada and 6.1 percent for services in the United States. These profits of C$62.2 million, however, were not able to fully offset the C$55.6 million loss Crownx experienced in its other subsidiary.

Management expects to continue its strategies to ensure future growth, including diversification into businesses that relate to the company’s health care operations and selective purchasing and construction of facilities in areas that provide satisfactory funding systems. Acquisitions and sales of nursing centers are also a part of the company’s future profitability strategy. Centers are acquired that provide future growth opportunities; centers are divested that do not meet operational or financial criteria. Earnings from operations for Extendicare include gains on sales of nursing centers. In 1990 and 1992, earnings from the sale of nursing homes averaged 5.5 percent of the company’s total operating revenues.

Competition and funding issues will likely place pressure on Extendicare’s nursing care centers through the 1990s. Costs are increasing faster than the increases provided in the governmental rate structures in both the United States and Canada, and additional regulations and taxes are increasing the costs to health care centers. In 1991 the Canadian government imposed a goods and services tax (GST) that applies to many of the costs incurred by patients in nursing centers and by recipients of home care services. The cost to Extendicare for GST in 1991 was C$1.2 million. As a result of the cost increases, there is an emerging industry trend of hospitals and health care facilities operating at a deficit. Through 1992, however, all facilities managed and owned by Extendicare operated without deficits.

With the continued growth of the elderly population, Extendicare expects the market for health care facilities to increase. In addition to a greater number of people requiring nursing care in the future, the level of that care is expected to increase, since some of the ailments associated with aging— like Alzheimer’s Disease—often necessitate specialized and demanding intervention. Extendicare is further expanding its markets by offering rehabilitation programs and short-term care to patients after hospital stays.

Principal Subsidiaries

Para-Med Health Services; United Health, Inc. (United States); United Professional Services (United States); International Care Services Limited (United Kingdom; 33%)