Sun Healthcare Group Inc.

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Sun Healthcare Group Inc.

101 Sun Avenue NE
Albuquerque, New Mexico 87109
U.S.A.
(505) 821-3355
Fax: (888) FAX-SUNH (329-7864)
Web site: http://www.sunh.com

Public Company
Incorporated: 1989 as Sunrise Healthcare Corp.
Employees: 68,900
Sales: $2.01-billion (1997)
Stock Exchanges: New York
Ticker Symbol: SHG
SICs: 2834 Pharmaceutical Preparations; 5122 Drugs, Proprietaries & Sundries; 8049 Offices of Health Practitioners, Not Elsewhere Classified; 8051 Skilled Nursing Care Facilities; 8059 Nursing & Personal Care, Not Elsewhere Classified; 8062 General Medical & Surgical Hospitals; 8069 Specialty Hospitals, Except Psychiatric; 8093 Specialty Outpatient Clinics, Not Elsewhere Classified; 8099 Health & Allied Services, Not Elsewhere Classified; 8361 Residential Care

Headquartered in Albuquerque, New Mexico, Sun Healthcare Group Inc. is a fast-growing, diversified care provider which operates companies with long-term, subacute nursing care, postacute nursing care, and ancillary healthcare services facilities in the United States, the United Kingdom, Spain, Germany, and Australia; Sun Healthcare also has subsidiaries which provide therapy and pharmacy services, and fulfill the medical supply needs of nursing homes.

In less than a decade, Sun has grown to become one of the largest nursing home operators in the United States, with its dramatic growth built on providing quality healthcare services to nursing homes, including rehabilitation therapy (through its SunDance subsidiary), respiratory therapy (through its SunCare subsidiary), pharmaceutical services (through its SunScript subsidiary), medical supplies (through its SunChoice subsidiary), and other healthcare services for the long-term care industry. Sun companies also provide home healthcare services and hospice care.

The Inpatient Services Division consists of several groups. The company’s SunRise Healthcare Corporation consists of skilled nursing and long-term residential care; postacute medical care for patients with complex medical conditions or who are recovering from accidents, strokes, or other debilitating conditions; specialized care for patients with Alzheimer’s disease and other types of dementia; and 321 facilities with more than 36,000 beds in the United States. Sun Healthcare Group International Ltd. contains the second largest nursing home operator in the United Kingdom (in Ashbourne PLC) with 133 facilities with more than 8,000 beds throughout England, Scotland, Wales, and Northern Ireland; a majority interest in Germany’s Heim-Plan Unternehmensgruppe, with 11 facilities and more than 900 beds; a majority interest in Spain’s Eurosar S.A., with eight facilities and more than 1,300 beds; and interests in Alpha Healthcare Ltd., which operates 10 acute care facilities, and a majority interest in six acute care facilities operated by Moran Health Care Group Ltd., both in Australia. The SunBridge Assisted Living group consists of upscale residences for older adults who need help to remain independent, offering luxury living combined with quality healthcare, with residences operating in Denver, Colorado; Roswell, Georgia; Tucson and Sun City, Arizona; Las Vegas, Nevada; and San Jose, California.

The Rehabilitation Services Division consists of several groups. The SunDance Rehabilitation Corporation provides contract physical, occupational, and speech therapy and has more than 8,000 therapists serving more than 1,100 facilities in 45 states. CareerStaff Unlimited Inc. is the nation’s largest temporary therapy staffing service. SunCare Respiratory Services Inc. provides certified hospital-based respiratory therapy services, with more than 2,000 therapists serving more than 700 facilities nationwide, as well as respiratory supplies, medical gases, and complex medical equipment. SunAlliance Healthcare Services provides mobile radiology, laboratory and physician services, and hospice care.

The Pharmaceutical Services Division’s SunScript Pharmacy Corporation provides institutional pharmacy services to more than 800 facilities. SunChoice Medical Supply Inc. provides medical supplies and inventory management to nursing homes. SunScript/SunChoice U.K. provides retail and institutional pharmacy services in England, Wales, and Scotland, and contains 19 pharmacies. SunFactors Inc. is a national provider of chronic disease state pharmaceutical care. SunPlus Home Health Services provides skilled nursing, therapy, social services, and housekeeping support for patients in their homes and is Medicare certified.

Andy Turner, 1974–89

In 1974, Andy Turner, a graduate of Ohio State University in business administration, began his career in the health services industry when the pastor of his church asked him to take over the management of the church’s nursing home in Springfield, Ohio. Turner became the administrator of the 150-bed skilled nursing facility and remained for five years. Turner went from there to become manager of a regional nursing home chain, and then on to Tacoma, Washington-based Hillhaven Corporation, then a subsidiary of and later spun off from National Medical Enterprises (NME) in January 1990, where he became senior vice-president of operations.

In 1986, Turner and two partners, one of whom was Neal Elliott, president of Hillhaven, left to form Horizon Healthcare Corporation in Washington, before moving the company’s headquarters to Albuquerque, New Mexico. Turner served as Horizon’s chief operating officer.

In 1989, Turner purchased seven unprofitable nursing homes in Washington and Connecticut from Horizon and left the corporation to form his own company, Sunrise Healthcare Corp., leaving Elliott in charge of Horizon, and eventually becoming Sun’s chairman and CEO. Turner managed to slow the fledgling corporation’s fiscal losses in the first year and, by the second, Sun was showing a profit, eventually growing into what it is today. Horizon and Sun continued their friendly rivalry with each other to this day.

When the company started in 1989, it was just an average nursing home company, but gradually grew and became a little more specialized, focusing on taking sicker, or heavier acuity patients, people who might otherwise be receiving inpatient services in hospitals. By 1992, total revenues had reached $135.7 million, with net income of $4.4 million.

The following year, the company began trading on the New York Stock Exchange under the symbol “SHG,” and total revenue for 1993 climbed to $230.8 million, with net income of $13.5 million.

Mediplex Group Inc., 1994

In 1994, the company merged with Massachusetts-based Mediplex Group Inc., a well-known provider of skilled nursing, rehabilitative, psychiatric, and substance abuse treatment services located primarily in the northeastern United States, which moved Sun above Public Service Co. of New Mexico as the state’s largest publicly traded company and transformed Sun into the sixth largest provider of subacute services in the nation.

Mediplex was founded in the 1970s as an operator of nursing home centers by Abraham D. Gosman. The company completed its initial public offering in October 1983, and built a network of subacute facilities in two specialized divisions, Skilled Nursing/Rehabilitation Services and Psychiatric Services/Substance Abuse Treatment. In 1985, Mediplex formed a real estate investment trust called Meditrust to sell and lease back facilities to save money. Mediplex was sold to Avon Products Inc. in April 1986 for approximately $265 million.

In the late 1980s, Avon abandoned its efforts to build a healthcare franchise, selling the company back to previous management for $40 million in August 1990 Diamond Health Care Acquisition Corp., a group formed by Gosman and several former members of Mediplex’s management, repurchased the company from Avon and began to restructure operations. In 1991, bad press for the two leading publicly held psychiatric hospital companies, NME and Community Psychiatric Centers, brought the entire psychiatric industry down, but, in August of that year, Mediplex managed to raise $38 million from a second public offering.

In 1992, the company built a 150-bed project in Mahwah, New Jersey; a 120-bed facility at Milford, Connecticut; and an 80-bed rehabilitation facility (Mediplex Rehabilitation of Bristol) in New Bedford, Massachusetts; as well as adding 90 beds to its Wethersfield, Connecticut facility and closing its Mountain Wood, Virginia and Spofford Hall, New Hampshire facilities. Mediplex entered the ambulatory surgical business in November of that year with the acquisition of Medical Management and Development Corporation’s seven freestanding ambulatory surgery centers in Connecticut and Massachusetts, with 22 operating suites, performing over 20,000 procedures annually, ranging from ophthalmology; gynecology; orthopedic; and ear, nose, and throat.

Total revenue for Sun Healthcare in 1994 jumped to $673.4 million, with net income of $19.5 million, and the company had increased its revenues 66 percent annually since its inception.

More Consolidations in the Industry, 1995–97

In 1995, Horizon attempted to purchase Hillhaven, but it was instead acquired by Louisville, Kentucky-based Vencor Inc., a long-term acute care company, one-fourth the size of Hillhaven.

Company Perspectives:

Mission: To become the nation’s premier and most innovative provider of contract rehabilitation services, leaders in clinical excellence and program development, and the company for whom therapists want to work.

By June, the top ten long-term care providers by operating revenue were: 1) Beverly Enterprises Inc. ($3.0 billion); 2) Horizon/CMS Healthcare ($1.8 billion); 3) Vencor/Hillhaven ($1.7 billion); 4) Integrated Health Services ($1.1 billion); 6) Manor HealthCare Corp. ($1.02 billion); 7) Living Centers of America ($894 million); 8) GranCare Inc. ($774 million); 9) United Health Inc. ($728 million); and 10) Life Care Centers of America ($725 million). Total revenue for Sun Healthcare in 1995 soared to $1.1 billion, with a net loss of $24 million, catapulting the company to number six on the list.

By 1996, the company’s corporate headquarters grew several more buildings, including the 12,000 square foot Glaesner Training Center, featuring state-of-the-art communications and teleconferencing facilities to enable Sun Healthcare to train and communicate with its employees worldwide.

In February of that year, Horizon acquired Medical Innovations Inc. of Houston, a $70 million company with home healthcare services in Texas, Nevada, Virginia, and Florida. Also in 1996, Horizon acquired Pennsylvania-based Continental Medical Systems (CMS), the largest single provider of rehabilitation therapy services in the country, which more than doubled Horizon’s size, and the newly created Horizon/CMS Healthcare Corp. took away the “largest publicly traded” laurel from Sun.

By this time, though, smaller operators were finding it hard to compete with giants like Sun and Horizon because of the increasing complexity of medical services; growing regulatory and compliance requirements; increasingly complicated reimbursement systems; and a lack of sophisticated management information systems, operating efficiencies, and financial resources to keep them going when Medicare or Medicaid reimbursements were either delayed or curtailed. The strategy from 1996 on was growth and expansion through mergers and acquisitions, as well as diversification. Total revenue for the company in 1996 reached $1.3 billion, with a net income of $21.5 million.

In 1997, the company acquired a 38 percent interest in Alpha Healthcare Ltd. and a majority of six hospitals of Moran Health Care Group Pty Ltd., both in Australia.

Regency Health Services Inc., 1997

In August 1997, the long-term care industry further consolidated as Living Centers of America and GranCare merged, and Sun Healthcare acquired Regency Health Services Inc. in a $369 million transaction. Regency, the Tustin, California-based skilled nursing facility operator and provider of related specialty healthcare services (including rehabilitation therapy, pharmacy, and home health services) had annual sales in 1996 of $558 million, and brought some 16,170 employees under Sun Healthcare’s umbrella.

1998 and Beyond

In January 1998, Medicare patients were given new choices in their care programs under The Balanced Budget Act of 1997, which has the aim of moving more elderly into managed care.

In March, Sun Healthcare continued its global expansion, acquiring Procedo Stocker GmbH, a privately held German supplier of electronic forms, organizational systems, and medical and surgical devices to nursing homes and hospitals, for $2.8 million. The Allerhausen-based company serviced approxi-mately 2,000 nursing homes and 1,000 hospitals in Germany, as well as facilities in Holland and Austria. That month, the company also created Australian divisions of its SunScript and SunChoice subsidiaries, based in Sydney, to provide pharmacy services and medical supplies to both affiliated and nonaffiliated long-term care facilities and hospitals in Australia.

In July, the company acquired Retirement Care Associates Inc. (RCA), an operator of skilled nursing facilities and assisted living centers in seven states in the southeastern United States, in a $320.6 million transaction of stock and waivers. With the acquisition, the company also picked up Tampa Bay, Florida-based Contour Medical Inc., a national provider of medical and surgical supplies for the long-term care industry and specialty products for hospitals, of which RCA owned approximately 65 percent.

As healthcare companies continued to consolidate, many analysts speculated on the potential merger of Sun and Horizon/CMS, since Neal Elliott and Andrew Turner had worked together once before. Although both companies have demurred, saying that anti-trust laws would limit complete consolidation of the industry, it would be interesting to watch both as they continued to dominate different regions of the country.

Principal Subsidiaries

Inpatient Services Division; Sun Healthcare Group International Ltd.; Alpha Healthcare Ltd. (Australia); Ashbourne PLC (U.K.); Eurosar S.A. (Spain); Heim-Plan Unternehmensgruppe (Germany); Moran Health Care Group Ltd. (Australia); SunBridge Assisted Living; SunRise Healthcare Corporation; Mediplex Group Inc.; Medical Management and Development Corporation; Regency Health Services Inc.; Brittany Rehabilitation Center Inc.; Hallmark Health Services Inc.; Harbor View Group Home Inc.; Americare Development Corp.; Americare HomeCare Inc.; Americare HomeCare of West Virginia; Americare Midwest Inc.; Americare Nursing Center Inc.; Americare of West Virginia Inc.; Assist-A-Care Inc.; Braswell Enterprises Inc.; Brel Inc.; Care Development Corp.; Care Enterprises Inc.; Care West-Sierra Co.; Care Finance Inc.; Care Home Health Services Inc.; Circleville Health Care Corp.; Executive Pharmacy; First Class Pharmacy Inc.; Glenville Health Care Inc.; New Lexington Health Care Corp.; Hampshire Insurance Company Limited; HealthCare Network; Jackson Rehabilitation Center Inc.; Lancaster Health Care Corp.; Marion Health Care Corp.; Monroe Park Center Inc.; Pomeroy Health Care Corp.; Putnam Health Care Corp.; Regency High School Inc.; RHS Management Corporation; Rittman Health Care Corp.; Rosewood Rehabilitation Center Inc.; Salem Health Care Corp.; Stockton Rehabilitation Center Inc.; Sunset Villa Corp.; Vista Knoll Rehabilitation Center Inc.; CareerStaff Unlimited Inc.; SunAlliance Healthcare Services; SunCare Respiratory Services Inc.; SunDance Rehabilitation Corporation; SunChoice Medical Supply Inc.; SunFactors Inc.; SunPlus Home Health Services; SunScript Pharmacy Corporation; SunScript/Sun-Choice U.K.; SunQuest Consulting Services; SunSolution Inc.