Healthcare Update
by Tim Meyer (TMF Attila)

McLean, VA (June 16, 1997) --

OUR POLITICAL HEALTH

DON'T SHOOT THE VILLAGE MESSENGER

Our President, in a speech this week, directed the Treasury Secretary to require warning signs be posted in gun stores urging adults not to give the guns they buy to children who are not legally allowed to purchase their own. The White House is also concerned that many Web sites are advertisements in disguise that unfairly target children, weaving products and opportunities to buy them with such online activities as playing a game. Accordingly, one of the recommendations from a task force set up to review electronic commerce headed by Ira Magaziner (yep, he of Health Reform fame) wants industry assurances kids will get parental permission before giving out private information to Web-site operators. I feel a lot safer and sure am glad the era of big government is over.

IS IT WHITE SMOKE YET?

Those watching the chimney of the tobacco settlement talks have yet to see white smoke. While California became the 37th state to file suit against the tobacco companies this week, negotiators were reportedly close to a deal. Some details have been released indicating what the tobacco companies have agreed to including a nationwide licensing system for all tobacco sellers and adding black labels covering the top fourth of cigarette packs with warnings including "Cigarettes are addictive" and "Smoking can kill you." (I recommend "Don't give guns to kids," "Do you know what your kids are doing on the Web?" and "Airbags kill kids" be added to the list of warnings).

A number of restrictions will be placed on tobacco company marketing and to protect against a First Amendment challenge or congressional opposition, the tobacco companies will reportedly sign consent decrees with all states agreeing to these provisions. Immunity from punitive damages is the primary stumbling block to a final agreement. Even if the talks that have lasted more than three months can be successfully concluded, Health and Human Services Secretary Donna Shalala has stated any deal will be viewed as "a proposal, not a final settlement," by the village people in the Clinton administration. It appears we should have a better idea of whether the preliminary deal will fall apart or reach a conclusion this week.

NON-PROFIT ANTITRUST WOES

If you thought the U.S. Department of Justice (DOJ) only went after for-profit companies looking to merge, think again. Long Island Jewish Medical Center (LIJ) and North Shore Health System (two non-profits) want to merge. The Justice Department has requested a temporary injunction against the merger because of antitrust concerns. The two health care organizations will ask the U.S. District Court to reject DOJ's opposition.

In a joint statement, the two chairmen of the companies said, "We cannot think of any other instance in which the U.S. Department of Justice has taken action, where the enforcement agency in the state most directly affected has not also taken action." The companies also point out that within 20 miles of North Shore and LIJ are 30 hospitals providing the same or similar health care services. In their joint statement, the chairmen said efficiencies created by merging would save $188 million in operating costs and capital expenditures as well allow several major clinical programs to be combined. The companies are confident that the court will allow the merger.

... AND BLUE BLUES

According to The Wall Street Journal, Blue Cross & Blue Shield of New Jersey and Anthem Inc. have decided to let their planned merger agreement expire on June 30. The merged company would have had nearly seven million policyholders and annual revenues of more than $9 billion. The New Jersey Attorney General issued an opinion that the Blue Cross company was a charity whose assets were in effect a public trust. The New Jersey Blues are challenging that opinion in court. The Journal quoted the CEO of the New Jersey Blues saying; "Some people think that any action by a Blue that is a conversion from one corporate form to another ought to carry some kind of ransom. We don't think that's appropriate."

Since the litigation could take a year or more to resolve, the companies decided to call off the merger.

IT IS YOUR MONEY, FOLKS

The Food and Drug Administration (FDA) has signed a contract with the state of Florida to help the agency enforce a federal regulation barring minors from purchasing tobacco products. Under the contract, Florida will receive federal money to ensure that retailers are not selling to children under 18 years old. Secretary of Health and Human Services, Donna Shalala said, "With this contract, we're taking concrete steps to keep tobacco out of the hands of kids." (What's everything else they've been doing - asphalt steps?) The FDA is negotiating with nine other states to conduct similar inspections under federal auspices. Details of what was required of the state to receive this dole from the federal trough were not addressed in the article I saw.

HEALTHCARE STOCKS IN THE NEWS

VENCOR, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: VC)") else Response.Write("(NYSE: VC)") end if %> and CNA <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CNA)") else Response.Write("(NYSE: CNA)") end if %> announced that they have entered into an agreement creating the nation's first alliance aimed at developing a long-term insurance product that will reduce costs for long-term care services for policyholders. Under the agreement, CNA will offer a long-term care insurance product which features discounts for services provided by members of Vencor's network of long-term care providers. The new long-term insurance product will be available later in the year. For the week, Vencor was down $2 1/8 (4.8%), closing at $41 3/4, while CNA was down $1 3/8 (1.3%), closing at $102 1/8.

TRANSITIONAL HOSPITALS CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: THY)") else Response.Write("(NYSE: THY)") end if %> announced that the company has negotiated a form of merger agreement with Vencor, Inc. pursuant to which Vencor would acquire the company for $16.00 a share, or about $639 million, following completion of Vencor's pending tender offer. As a result, the company notified Select Medical Corporation of the company's intent to terminate its agreement with Select pursuant to which Select would acquire the company for $14.55 a share. The company must negotiate with Select to make such adjustments to the terms and conditions of the Select agreement, which would enable the company to proceed with the transactions contemplated by the Select agreement. The Select agreement further provides that under certain circumstances a termination fee of $19,415,000 is payable upon termination of the Select agreement. Vencor and certain shareholders have filed suits challenging the termination fees. For the week, Transitional was up $3/8 (2.4%), closing at $15 7/8.

COMPREHENSIVE CARE CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CMP)") else Response.Write("(NYSE: CMP)") end if %> announced that the company sold its 128-bed freestanding hospital located in Cincinnati, Ohio, to Vencor Inc. and will use the $3 million in cash proceeds for working capital to support the implementation of recent contract awards. In a press release, the company said its strategy is to focus resources on its growing managed care business and continues to search for buyers for its remaining hospital in Texas. For the week, CompCare was down $1 1/4 (8.3%), closing at $13 7/8.

ENVOY CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: ENVY)") else Response.Write("(Nasdaq: ENVY)") end if %> and Aetna U.S. Healthcare, the health business unit of AETNA INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AET)") else Response.Write("(NYSE: AET)") end if %>, announced they have signed an agreement for ENVOY to acquire Healthcare Data Interchange Corporation, the health care provider electronic data interchange (EDI) subsidiary of Aetna U.S. Healthcare, for approximately $36.4 million. In connection with this acquisition, the parties will enter into a long-term agreement under which Aetna U.S. Healthcare has agreed to use ENVOY as its single source clearinghouse and EDI network for all Aetna U.S. Healthcare electronic health care transactions. For the week, ENVOY was up $2 1/2 (8.3%), closing at $32 3/4, while Aetna was up $1 3/8 (1.3%), closing at $109 1/2.

COLUMBIA/HCA HEALTHCARE CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: COL)") else Response.Write("(NYSE: COL)") end if %> announced the acquisition of the 135-bed Beckley Hospital in Beckley, W. Va. Terms of the deal were not disclosed. Columbia Raleigh General Hospital, also in Beckley, will immediately begin an in-depth review of patient-care services at Beckley Hospital in order to merge the operations of Columbia Raleigh General and Beckley Hospital, according to the company. Results of the evaluation will determine future plans for the hospital. For the week, Columbia/HCA was up $1/2 (1.3%), closing at $38 3/8.

HEALTHDYNE TECHNOLOGIES, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: HDTC)") else Response.Write("(Nasdaq: HDTC)") end if %> announced that its Board of Directors has unanimously rejected the latest unsolicited offer by INVACARE CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: IVCR)") else Response.Write("(Nasdaq: IVCR)") end if %> to purchase Healthdyne Technologies. The board considered the $15.00 a share price offered by Invacare "grossly inadequate." Invacare said it would not raise its offer and will leave it up to shareholders to decide on July 30. In reaffirming its decision not to sell or merge the company, Healthdyne's Board maintains that the company offers greater growth potential for shareholders on a stand-alone basis. For the week, Healthdyne was up $1/8 (0.8%), closing at $15 5/8, while Invacare was up $2 1/8 (9.8%), closing at $23 3/4.

THE MULTICARE COMPANIES, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: MUL)") else Response.Write("(NYSE: MUL)") end if %> announced that it has entered into a definitive agreement under which a company formed by GENESIS HEALTH VENTURES, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: GHV)") else Response.Write("(NYSE: GHV)") end if %> and two privately held groups (The Cypress Group LLC and The Texas Pacific Group) will acquire Multicare for $28.00 a share in cash, resulting in a transaction value of $1.4 billion, including the assumption or repayment of debt. The new company will be named Genesis ElderCare Acquisition Corp. (GEAC).

Under the merger agreement, the acquirer will promptly commence a cash tender offer for all Multicare shares at $28.00 a share. The offer is subject to, among other things, the tender of a majority of the outstanding shares on a fully diluted basis, the acquirer's receipt of financing pursuant to its debt financing commitments, the expiration or termination of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (HSR Act) and other regulatory approvals. Each party has also agreed to pay the other a "break-up" fee under certain circumstances.

Separately, Genesis announced that it will enter into a multi-year management services contract with GEAC to manage Multicare's operations for an annual management fee of 6% of total revenues. For the week, Multicare was up $2 1/4 (9.1%), closing at $26 7/8, while Genesis was down $1/8 (0.4%), closing at $35 3/8. This deal was subject of a "Fool Plate Special" in The Lunchtime News 6/16/97.

HORIZON/CMS HEALTHCARE CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: HHC)") else Response.Write("(NYSE: HHC)") end if %> and HEALTHSOUTH CORPORATION (NYS: HRC) announced that they received a request for additional information under the HSR Act from the Federal Trade Commission with respect to the proposed merger of the two companies. As a result, the waiting period for the transaction under the HSR Act, which was to expire on June 7, was extended until 20 days after Horizon/CMS and HEALTHSOUTH substantially complies with the request. The additional information centers exclusively on competitive data, and the effects on competition of the proposed merger, relative to the Johnson City, Tennessee market area, according to the companies. For the week, Horizon/CMS was up $2 (10.2%), closing at $21 5/8, while HEALTHSOUTH was up $2 5/8 (10.8%), closing at $26 7/8.

DURAMED PHARMACEUTICALS INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: DRMD)") else Response.Write("(Nasdaq: DRMD)") end if %> will challenge the FDA's refusal to approve generic versions of Premarin. Duramed will file an administrative appeal asking the FDA commissioner to reverse the agency's May 5 decision. The decision also impacted generic-drug maker BARR LABORATORIES INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(AMEX: BRL)") else Response.Write("(AMEX: BRL)") end if %>. Premarin is made by AMERICAN HOME PRODUCTS CORP.'s <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: AHP)") else Response.Write("(NYSE: AHP)") end if %> Wyeth-Ayerst Laboratories. If the acting FDA commissioner turns down Duramed, the company plans to file a court appeal. Barr Laboratories hasn't indicated if it plans to appeal the decision. For the week, Duramed was up $5/16 (7.3%), closing at $4 5/8, Barr was up $6 1/8 (18.9%), closing at $38 1/2 (Barr has other generic drugs in its pipeline including a generic version of a popular blood-thinning drug, Coumadin), while American Home Products was up $1 3/4 (2.3%), closing at $78 5/8.

AMERICAN HEALTHCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: AMHC)") else Response.Write("(Nasdaq: AMHC)") end if %> announced a delay in its plan to effect a spinoff of AmSurg Corp., its 59%-owned subsidiary, through a distribution to American Healthcorp's stockholders of all the company's AmSurg Corp. common stock. The proposed distribution was subject to receipt of a favorable Internal Revenue Service (IRS) ruling that the transaction could be completed on a substantially tax-free basis. The IRS informed the company that a favorable ruling will not be issued on the transaction as it is currently structured. American Healthcorp is submitting to the IRS alternative structures which the company believes should result in the receipt of a favorable ruling. For the week, American Healthcorp was down $5/8 (5.5%), closing at $10 3/4. (Is it just me or do the last few stories make you wonder what business would be like today if we were still living in the era of big government?)

The chief operating officer of CARDINAL HEALTH, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: CAH)") else Response.Write("(NYSE: CAH)") end if %>, in his comments to investors at the Goldman Sachs Annual Healthcare Conference, affirmed his comfort level with current consensus street estimates of $0.55 for the fourth fiscal quarter of 1997, $2.02 for the full year 1997, and $2.45 for fiscal 1998, excluding merger-related charges in 1997, all of which represent earnings growth rates in excess of Cardinal's stated objective of 20%. For the week, Cardinal was down $1/8 (0.2%), closing at $60.

UNITED STATES SURGICAL CORPORATION <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: USS)") else Response.Write("(NYSE: USS)") end if %> announced that the United States District Court for the Eastern District of Virginia has awarded a total of $20.5 million in damages to Applied Medical Resources in its patent litigation against certain US Surgical trocar products. The court denied Applied Medical's request for legal fees. US Surgical plans to reserve the full amount of the award, plus related expenses pending a verdict in its appeal. For the week, US Surgical was up $1 1/4 (3.8%), closing at $34.

VISX, INC. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: VISX)") else Response.Write("(Nasdaq: VISX)") end if %>, a manufacturer of eximer lasers informed investors it would not make its second quarter numbers of $0.22 a share and $0.98 a share for the year ending in December. This was the subject of a "Fool Plate Special" in The Lunchtime News on 6/12/97. For the week, VISX was down $5 (18.2%), closing at $22 1/2.

SABRATEK CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: SBTK)") else Response.Write("(Nasdaq: SBTK)") end if %> was featured in the Daily Double on 06/11/97 and UROMED CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: URMD)") else Response.Write("(Nasdaq: URMD)") end if %> was featured in the Daily Trouble on 06/12/97. For the week, Sabratek was down $2 1/4 (7.3%), closing at $28 3/4, while UroMed was up $1/16 (1.8%), closing at $3 9/16.

EARNINGS REPORTS

CARETENDERS HEALTHCORP <% if gsSubBrand = "aolsnapshot" then Response.Write("(Nasdaq: CTND)") else Response.Write("(Nasdaq: CTND)") end if %> reported fourth quarter net income of $414,524 (including $370,000 or $0.12 a share of operating losses related to geographic expansion), or $0.13 a share, on revenues of $20.2 million, compared to 1996 fourth quarter net income of $255,352, or $0.08 a share, on revenues of $16.0 million. For the year, Caretenders reported net income of $1.8 million (including operating losses from expansion of $1.2 million or $0.39 a share), or $0.56 a share, on revenues of $76.8 million, compared to 1996's net income of $1.6 million, or $0.50 a share, on revenues of $63.2 million. For the week, Caretakers was up $1 7/16 (21.3%), closing Monday at $8 3/16.

RITE AID CORP. <% if gsSubBrand = "aolsnapshot" then Response.Write("(NYSE: RAD)") else Response.Write("(NYSE: RAD)") end if %> reported first quarter net income of $68.2 million, or $0.56 a share (a cent higher than estimates), on revenues of $2.7 billion, compared to 1996 first quarter net income of $32.7 million, or $0.39 a share, on revenues of $1.4 billion. For the week, Rite Aid was up $1 3/4 (3.7%), closing Monday at $49.

That will wrap it up for this week. Please share any comments/suggestions on how to improve this feature via e-mail (TMF [email protected]). Also let me know if you would like the update forwarded to your email address. In the meantime, here is hoping your investments are healthy!

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