Beverly increases reserves for patient-care liability costs
(FORT SMITH, Ark., July 19, 2002) -- Beverly Enterprises Inc. (NYSE: BEV) today announced that it will increase reserves for patient-care liability costs related to prior policy-years by $43.3 million in the second quarter of 2002. Included in this amount is a special non-cash charge of $22.2 million to increase reserves related to the company's former nursing home operations in Florida, which were sold in early January 2002. The balance of the reserve adjustment, $21.1 million, relates to certain other states and will be included as part of "other operating expense."
Beverly also will record an additional $5 million in second-quarter operating expenses to reflect increased liability costs for the current policy-year, which began May 1, 2002 ($2.5 million additional per month for May and June). Monthly accruals will continue at the higher level for the balance of 2002.
As a result of these projected increases in patient-care liability costs, Beverly expects to report a loss for the second quarter of approximately $14 million (13 cents per share diluted). As previously announced, Beverly will release complete second-quarter financial results on July 30.
These projected cost increases are based on a recently completed actuarial study by Aon Risk Consultants Inc., an independent advisor that conducts semiannual analyses of Beverly's liability claims experience to develop projected expenses. Aon has provided such services to the company for five years.
"Beverly's principal business units continue to demonstrate the very positive operating trends that we achieved during the first quarter," said William R. Floyd, Beverly chairman and chief executive officer. "Adjustments for patient-care liability reserves should not detract from a very solid operating performance that would have produced on-target pro forma earnings of at least 14 cents per share. We remain in full compliance with all debt covenants, and further reduction in our overall debt level remains a priority for us."
Reserves for projected prior policy-year liability costs and accruals for current-year estimated expenses are determined by semiannual analyses conducted by Aon and reviewed by Ernst & Young LLP, Beverly's independent auditors. Patient-care liability accruals for 2002 had been based initially on an October 2001 Aon actuarial study. The most recent Aon study, based on data through April 2002, shows significant and unanticipated increases in both the frequency and severity of claims from prior policy years. This adverse prior policy-year experience also led to increased forecasts for patient-care liability costs for the current insurance policy-year, which began May 1, 2002.
The magnitude of these unanticipated increases in prior policy-year claim frequency and severity was particularly evident in Florida. This reflects an industry trend in that state of significant increases in lawsuits filed as a result of the passage of limited tort reform legislation in May 2001, which required that lawsuits relating to certain prior years be filed by October 5, 2001. Many of these suits were not served on Beverly until three or four months later due primarily to court backlogs.
More recently, there also has been unanticipated growth in claims and expected losses in Alabama, Arkansas, Mississippi and California -- states that have been targeted by an increasingly aggressive plaintiff's bar
"These dramatic and unanticipated increases in patient-care liability costs demonstrate the soundness of our decision to sell our nursing home operations in Florida," Floyd noted. "If those facilities were still part of our nursing home portfolio, current policy-year accruals for Florida alone would total at least an additional $120 million. These runaway legal costs seriously jeopardize our nation's ability to adequately provide quality care to a growing population of frail and elderly Americans. Half the money paid for patient-care liability in our profession ends up in the pockets of trial lawyers. These lawyers really are being subsidized by taxpayers, who ultimately bear the burden of higher Medicare and Medicaid costs.".
editorial comment by poster: Does anyone ask why there is so much litigation towards Beverly Enterprises, and why that litigation "seriously jeopardize our's nations ability to adequately provide quality care to frail and elderly Americans?"
Floyd added: "We continue to make significant improvements in the quality of care we provide throughout our nursing home operations, yet we continue to be penalized because of our size by a judicial system that in many states denies nursing home operators a level playing field and puts us at a distinct legal disadvantage. The dramatic and unjustified liability cost increases we're seeing throughout our profession present a compelling case for tort reform at both state and national levels.
"Within Beverly, we will continue to strategically reshape our nursing home portfolio and to develop other aggressive options to effectively manage our risk profile. We also will continue to lead the fight for equitable tort reform in the public policy arena. Well-informed voters will not permit funding for eldercare to be siphoned off by the plaintiff's bar."
Beverly's management will discuss the company's financial and operating performance in a previously announced conference call for shareholders on Tuesday, July 30, following release of second-quarter results. To ensure full disclosure of relevant information, Beverly management will have no further comment until that conference call.
Beverly shareholders may listen to that call at 8:30 a.m. EDT by dialing 800-238-9007 or 719-457-2622 and entering reservation number 442707. A recording of that conference call will be available from 11:30 a.m. EDT that day until midnight Tuesday, August 6. Shareholders may dial 888-203-1112 or 719-457-0820 and enter reservation number 442707 to access the recording.
Beverly Enterprises Inc. and its operating subsidiaries comprise a leading provider of healthcare services to the elderly in the United States. They operate 462 skilled nursing facilities, as well as 29 assisted living centers, 53 home care and hospice centers, and 153 outpatient therapy clinics. Through AEGIS Therapies, they also offer rehabilitative services on a contract basis to nursing homes operated by other care providers.
(FORT SMITH, Arkansas, July 30, 2002) -- Beverly Enterprises Inc. (NYSE: BEV) today announced that, primarily because of previously disclosed increases in patient-care liability reserves, it recorded a loss of $14 million, or 13 cents per share diluted, in the second quarter of 2002. During the comparable period in 2001, Beverly earned $5.6 million (five cents per share diluted), which included special charges totaling $7.9 million primarily related to the sale of Florida nursing home properties.
As previously announced, Beverly increased its patient-care liability reserves for prior policy-years by $43.3 million (including a special charge of $22.2 million related to its former Florida properties) and increased accruals by $5 million in the second quarter for the current policy-year. Second-quarter results include a charge of $6.3 million related to the pending resolution of previously disclosed patient-care issues at certain California nursing homes. This pending settlement is not expected to have a material adverse impact on Beverly's nursing home operations in future periods. Results also include a $6.9 million credit related to the company's current assessment of estimated reserves from previous charges for settlements of federal government investigations.
Revenues totaled $634.7 million in the 2002 second quarter, compared to $680.8 million in the year-earlier period. Licensed beds declined by 13.7 percent, primarily reflecting the strategic sale of Florida facilities and the disposal of certain other under-performing nursing homes. Compared to the 2001 second quarter, nursing home average occupancy was up 115 basis points to 87.6 percent, and average per diem rates rose six percent to $147.74.
"Our core nursing home, contract rehabilitation therapy services and outpatient rehab businesses continued to achieve strong operating and financial results," said William R. Floyd, Beverly chairman and chief executive officer. "Adjustments for projected increases in patient-care liability reserves should not detract from the performance improvements we've made throughout our operating units and support groups in more recent periods. Excluding the impact of these adjustments, earnings per share exceeded our objective for the second quarter."
Continuing gains in nursing home, AEGIS and MATRIX operations
On a same-facility basis, nursing home operating profits (earnings before interest, taxes, depreciation, amortization and special charges) rose 25 percent from the second quarter of 2001, on a 6.2-percent increase in revenues.
Operating margins (operating profit as a percentage of net operating revenues) again exceeded 10 percent on both actual and same-facility bases. Average wage rates increased only five percent from the 2001 second quarter.
Patient mix continued to strengthen during the second quarter of 2002, with Medicare as a percentage of total revenues reaching 26.5 percent -- the highest level since the second quarter of 1998 and an increase of 139 basis points from the second quarter of 2001. As a percentage of total patient days, Medicare rose 89 basis points from the 2001 second quarter to 11.2 percent.
For the first six months of 2002, average per diem nursing home rates increased 5.1 percent for Medicaid patients, 6.6 percent for Medicare and 5.5 percent for private/other, compared to the first half of 2001.
Revenues from rehabilitation therapy services provided by AEGIS Therapies to third-party nursing homes more than tripled from the year-earlier second quarter and were up nearly 18 percent sequentially, reflecting the addition of 26 more non-Beverly facilities. Operating profits rose 12 percent on a comparable basis from the 2001 second quarter.
MATRIX Rehabilitation, which provides non-geriatric outpatient therapy services at 153 clinics in key markets, again exceeded its internal financial objective and achieved an operating profit in the 2002 second quarter, compared to a loss in the year-earlier period.
As disclosed in the 2002 first-quarter earnings announcement, Beverly has been reviewing the long-term viability of its home medical equipment business unit -- MK Medical, based in Fresno, Calif. In conjunction with this review, Beverly began investigating past billing practices at that unit, and has retained an independent third party to audit MK Medical's billing of government payors to determine whether there have been any overpayments. Until the results of this Beverly-initiated audit are known, the extent of potential overpayments, penalties or fines cannot be quantified, but they could have a material adverse effect on Beverly's results of operations.
Annualized cash receipts since the October 1998 acquisition of MK Medical have averaged about $20 million, of which approximately $15 million relates to government payors.
Outlook for second half
"We've modified our operating plan for the balance of 2002, and our pro forma earnings objective is now 12 cents per share diluted for the third quarter and 13 cents for the fourth," Floyd said. "This reflects increased accruals for current policy-year patient-care liabilities of $7.5 million for each of these quarters.
"Our 2002 operating plan continues to be based on Medicare funding being extended at current levels. We're very encouraged by recent indications from the Senate in support of existing Medicare funding levels, and believe that Congress will avoid any actions that would severely impact the quality of care for the elderly or impede their access to it.
"Overall increases in Medicaid rates for 2002 are projected to be in line with our original estimate. Budget pressure in certain states could be alleviated by legislation currently pending in Congress and supported by the National Governors Association that would provide an additional $6 billion in federal funds for Medicaid spending. This is another encouraging development."
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Beverly shareholders may listen to a discussion by senior management of the company's performance and prospects at 8:30 a.m. EDT today by dialing 800-238-9007 or 719-457-2622 and using reservation number 442707. A recording of this conference call will be available from 10:30 a.m. EDT today until midnight Tuesday, August 6. Shareholders may dial 888-203-1112 and enter reservation number 442707 to access the recording.
This release is intended to be disclosure through methods reasonably designed to provide broad, non-exclusionary distribution to the public in compliance with the Securities and Exchange Commission's Fair Disclosure Regulation. The release may contain forward-looking statements, including statements related to expected 2002 performance, made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties that may cause the company's actual results in future periods to differ materially from forecasted results. These risks and uncertainties include: national and local economic conditions, including their effect on the availability and cost of labor, utilities and materials; the effect of government regulations and changes in regulations governing the healthcare industry, including the company's compliance with such regulations; changes in Medicare and Medicaid payment levels and methodologies and the application of such methodologies by the government and its fiscal intermediaries; liabilities and other claims asserted against the company, including patient-care liabilities, as well as the resolution of lawsuits brought about by the announcement of the federal government investigations or the settlements of such investigations; the ability to predict future reserves related to patient-care liabilities; the ability to attract and retain qualified personnel;
the availability and terms of capital to fund acquisitions and capital improvements; the competitive environment in which the company operates; the ability to maintain and increase census levels; and demographic changes. These and other risks and uncertainties that could affect future results are addressed in the company's filings with the Securities and Exchange Commission, including Forms 10-K and 10-Q.
Beverly Enterprises and its operating subsidiaries comprise a leading provider of healthcare services to the elderly in the United States. They operate 462 skilled nursing facilities, as well as 29 assisted living centers, 53 home care and hospice centers, and 153 outpatient therapy clinics. Through AEGIS Therapies, they also offer rehabilitative services on a contract basis to nursing homes operated by other care providers.