Health Care & Retirement Corporation

1944–1996

With operations in 16 states, Health Care & Retirement Corporation (HCR) ranks among America's top five providers of long-term care and skilled nursing services through a network of more than 300 facilities with about 16,500 beds. At the core of the company is a network of 128 retirement and nursing homes, known in the industry as long-term care facilities. In the late 1980s and early 1990s, HCR expanded into subacute care, including rehabilitation clinics, home healthcare, and pharmacy services. By the end of 1996, it had 66 outpatient therapy clinics and 33 home healthcare offices. Many of these adjunct facilities were connected to its nursing and retirement homes. These more recent developments are considered a key to future growth.

HCR's history stretches back more than 50 years, but the company has only been involved in the operation of nursing homes since 1974. Its stock has been publicly traded since late 1991, when HCR was spun off from parent Owens-Illinois Inc., which had owned the nursing home group since 1984. Fueled by a combination of organic growth, diversification, and acquisitions, the company's sales and profits recorded double-digit annual percentage increases in the early and mid-1990s. Revenues increased from $497.1 million in 1992 to $782 million in 1996, and net income more than doubled from $26.5 million to $59.4 million during the period.

Origins in 1940s

This company has undergone a half-century metamorphosis from a lumberyard to a diversified construction concern, to a nursing home company. Health Care & Retirement Corporation's roots stretch back to a family-owned lumber business headquartered in northwest Ohio. In 1944, C. V. Wolfe and two partners acquired the Lima Lumber Company. Though the lumber business was then a sideline to his regular employment, Wolfe had by the end of the decade bought out his partners and added lumberyards in the nearby towns of Wapakoneta and St. Marys. Perceiving an opportunity for growth in the post-World War II housing boom, Wolfe finally quit his day job in 1952 and diversified into construction with the creation of C.V. Wolfe & Co. C.V.'s son F. D. Wolfe, an alumnus of Harvard Business School, joined the growing family business soon after his graduation in 1955.

Together they created the Lima Mortgage Co. in 1957 to offer mortgage services to their construction clients. Just three years later, the Wolfes boosted their loan servicing operations to over $10 million via the acquisition of a controlling interest in First Toledo Corporation, an FHA mortgage lender. In 1962, the family changed the name of this company to Western Ohio Corp. and divested the mortgage business to concentrate on real estate development, most notably the development of nursing homes. The family built its first long-term care facility in 1963, and it leased that first property to an outside operator.

Revenues increased from $497.1 million in 1992 to $782 million in 1996, and net income more than doubled from $26.5 million to $59.4 million during the period.

1967–1979

The Wolfes continued to develop their construction interests throughout the 1960s as well, adding several quarries, concrete and asphalt plants, and even trucking operations.

F. D. Wolfe succeeded his father as chairman of the family business upon his father's death in 1967. This change in leadership presaged a 1970 reorganization that transformed the wide-ranging conglomeration still known as Lima Lumber into Wolfe Industries, Inc., a business with four primary subsidiaries: Lima Lumber, Inc., in charge of building materials; Wolfe Industries Construction Company, builder of nursing homes; Western Ohio Corporation, with trucking, investment, and other operations; and Western Ohio Transportation Company, a stone hauler.

Nursing Homes Come to the Fore in 1970s

In the early 1970s, F. D. Wolfe created a publicly-owned real estate investment trust (REIT), the Health Care Fund (later renamed Health Care REIT, Inc.) to finance nursing home construction projects. According to SEC documents, the fund was "the first real estate investment trust to invest exclusively in health care facilities." Within two years, Wolfe Industries was busy building eight nursing homes, most under contract to be operated by outside interests. The company undertook management of its first facility in 1974, when it acquired Indian Lake Manor, a 62-bed nursing home. In 1975 the company created Heartland Health Care Company to acquire Heartland of Perrysburg (Ohio), an upscale 136-bed nursing home. In 1977, the company expanded its reach into the neighboring state of West Virginia through the acquisition of two more nursing homes, thereby adding over 400 beds to its total capacity.

This new business proved quite profitable. Sales more than doubled, from $25 million in 1975 to $59 million by 1979, while net increased from $1 million to $2 million.

1981–1994

The company finally abandoned all its non-healthcare operations in 1981, when it spun off these businesses as Wolfe Industries, Inc. and retained the nursing home business as Health Care and Retirement Corporation of America. The company went public that same year, raising $4.7 million via the sale of an 18 percent stake (525,000 shares) at $9 per share. A second offering of 825,000 shares at about $14.50 per share raised $12 million in 1983.

HCR continued to grow through acquisition in the early 1980s, purchasing two dozen relatively small facilities in Ohio, Indiana, West Virginia, and Kentucky in 1982 and six more in 1983. During this period, HCR's construction arm also built more than three dozen nursing home facilities for lease and purchase by other companies. By the end of 1984, the company owned a total of 46 facilities with over 5,000 beds, and had broken into the nursing home industry's top 10. Net income had grown to $7.3 million on revenues of $96 million. That December, HCR was acquired by Owens-Illinois, Inc. (O-I), a Toledo, Ohio-based industrial firm. F. D. Wolfe resigned at that time, ending 40 years under the direction of a member of the Wolfe family.

HCR prospered under O-I. Acquisitions and new construction quadrupled the business from less than $100 million revenues in 1984 to $418.3 million in 1990. The number of facilities owned increased from 46 to 135 during this period, and the number of beds grew from about 5,000 to over 17,500. Oddly enough, only HCR's profitability suffered under O-I. Net profit rose to a high of $12.8 million in 1987 before sliding to $6.5 million in 1990.

The 1990s and Beyond

Owens-Illinois, which had itself been taken private through a leveraged buyout in 1987, spun off HCR to the public in October 1991, netting O-I nearly $250 million. The following year, HCR concentrated its operations in the states of Ohio, Michigan, and Florida by divesting all its Connecticut and Massachusetts centers and acquiring an Ohio-based rehabilitation therapy company, Heartland Rehabilitation Services, Inc. Growth through acquisition continued in 1994, when HCR purchased two privately held businesses in the Mid-Atlantic region.

1986–2010

Under the direction of Paul Ormond, who served as president from 1986 and CEO after the spinoff, the company distinguished itself not only by its size, but also by its strategies for profitable expansion. For example, HCR sought to maintain a "quality mix" of patients. This industry terminology refers to the percentage of Medicare and private-paying (i.e., non-Medicaid) residents in its long-term facilities. Since Medicare reimbursements were higher than those made by Medicaid--and private individuals paid even more--more "quality" clients meant higher profits. HCR's well-designed and -furnished, upscale facilities attracted residents who could afford such niceties. At about 68 percent, HCR's ranked among the industry's highest quality mix ratios.

HCR also broadened its areas of specialization to include home and hospice care, vision care, pharmacy service, rehabilitation therapy, and other subacute services. This diversification promised several benefits. Many of these services commanded higher fees and reaped higher profit margins than routine long-term care. They also expanded HCR's potential client base to include people of all ages who required short-term rehabilitation to recover from orthopedic or cardiac surgery as well as wound care and intravenous therapy. And while HCR made more money on these services, its facilities were 30 percent to 60 percent cheaper than care at a hospital, making it an attractive alternative for third-party payers seeking to cut costs in the increasingly competitive healthcare industry.

HCR's revenue and net income rose dramatically in the early 1990s. Sales expanded from $418.3 million in 1990 to $782 million in 1996. At the same time, HCR became more efficient at what it did, reducing basic operating expenses from 84.1 percent of sales in 1990 to just under 80 percent in 1996, helping to push net income from $6.5 million to $59.4 million.

HCR's savvy strategizing positioned it well for the late 1990s and early 21st century. Aging baby boomers with rising life expectancies promised a growing pool of potential retirement and nursing home residents. Demographic experts forecast that the number of Americans aged 85 and over would double from 3.3 million to 6.6 million by 2010. Furthermore, cost-cutting pressures on the healthcare industry overall fueled a shift from long, expensive hospital stays to subacute facilities like those being developed by HCR. Any seniors who managed to avoid the nursing home were still potential candidates for HCR's specialized outpatient and rehabilitation services. Even the company's Heartland service mark, which graces almost half of these long-term care centers, has the potential to become an important brand in the elder-oriented market to come.