State Rep's Questions to Fillmore Management May Prompt Beverly Relocation

by Mark Friedman  on Monday, Dec. 19, 2005 12:00 am  

Fort Smith boosters would like to put a muzzle on State Rep. Stephen Bright, R-Maumelle.

They said Bright's questions of Fillmore Strategic Investors LLC could encourage Fillmore to find new headquarters for Beverly Enterprises Inc., the nursing home chain now based in Fort Smith.

But Bright said he will continue to question the San Francisco private-equity firm on its commitment to nursing home care and its intention to keep Beverly's headquarters in Arkansas.

Fillmore was the highest bidder to buy Beverly for $12.50 a share, or $1.5 billion. A deadline for other offers expired last week. The deal is expected to close in late February or early March.

Earlier this year, Beverly put itself on the auction block after a hostile takeover attempt. North American Senior Care Inc. of New York had offered to buy Beverly for $13 a share but couldn't come through with the funding.

But before the deal with NASC collapsed, it came under heavy scrutiny from lawmakers in several states where Beverly operates nursing homes as to what its intentions were. Bright was one of the lawmakers who led the charge in Arkansas, saying he was concerned about the residents.

Last week Bright said he has the same questions for Fillmore as he had for NASC.

That scares some Fort Smith officials because they fear his questions might drive Beverly's headquarters out of Arkansas, which would be a further blow to the city. Last week, Whirlpool Corp. of Benton Harbor, Mich., said it would lay off 730 workers at its Fort Smith manufacturing plant in October as a new plant in Mexico becomes operational.

Fillmore hasn't said if it's going to keep Beverly's headquarters in Arkansas.

"If (Bright) continues along with the inquisition lines that he was on with the folks from Senior Care, I think that he continues to discredit Arkansas as far as being a pro-business state," said State Rep. Jim Medley, R-Fort Smith. "Stephen Bright, he needs to get a grip on his life.

"He's just giving ... our state a black eye. And he doesn't need to be doing that. He's not acting very responsible."

Bright said he has no intention of backing off.

"In fact, I probably have a heightened concern because this corporation has not even come close to making any commitments," Bright said. "They really don't want to go on the record for anything. I don't care who it is that is buying Beverly Enterprises: I'm going to ask the same exact questions of anybody that purchases. ... It's all about the quality of care and are those jobs going to stay in Fort Smith."

Medley said he thinks Bright's close scrutiny has nothing to do with patient care; instead, Medley accused him of trying to protect the interests of plaintiffs' attorneys who sue nursing homes.

"They want to make sure there's a deep pocket there for them," he said.

"I think that he's doing everything he can to try to generate physical interest in changing laws to require the operators of nursing homes to also have ownership or some type of deep-pocket bonding financing so it's worth their while to go after big dollars."

Bright is a surgical supply salesman, and there are no nursing homes in his district. He denied he was trying to assist trial lawyers.

"This is not a district issue. This is not a state issue. This is a national issue," Bright said. "This is my passion. I love these nursing home residents, and I absolutely would give my life for them."

The plaintiffs' attorneys are concerned about the sale because new owners typically look for ways to reduce patient liability costs by setting up a different legal and operating structure for the facilities.

"That makes it far more difficult for the plaintiffs' attorneys to get these extortionate judgments against a nursing home company," said Beverly spokesman James Griffith. "And nursing homes have been a wonderful gravy train for the plaintiffs' bar. And they're concerned this gravy train is going to come to a halt."

Attorney Chad Trammell of Texarkana, Texas, had some concerns about Beverly's sale to NASC because of what might happen to the assets. He currently has two cases against Beverly and has filed motions to prevent the sale of Beverly to NASC or to require that a bond of at least $173 million be posted.

"I was gravely concerned about Beverly's proposed deal with North American Senior Care because I felt the sale would leave Beverly unable to address patients' negligence claims," Trammell said last week in a statement to Arkansas Business. "I'm concerned about the Fillmore deal for the same reason. It's my job to make sure that Beverly is able to compensate the abuse victims I represent, and I plan to take action to protect my clients' interests — regardless of who buys the company."

Fillmore's Plans

Ron Silva, president of Fillmore, said his company was first attracted to Beverly because "we think it can benefit from our skills."

Fillmore Strategic Investors LLC is an affiliate of Fillmore Capital Partners, a private equity firm that invests in the lodging and health care sectors. It has offices in San Francisco and Worthington, Ohio. Among its investments are stakes in Wyndham, Ritz-Carlton, Hyatt and Sheraton hotels.

"We made a decision to expand our portfolio in long-term health, and Beverly was one of the companies that was on the market," Silva said. "And it, obviously, is a very large company, so we decided to focus on that as a candidate."

Beverly has posted strong numbers this year. For the nine months that ended Sept. 30, its revenue was $1.76 billion compared with $1.54 billion in the same period in 2004. And its net income jumped from $21.92 million in the first nine months of 2004 to $82.74 million in the same period this year.

"We hope to grow the company. It's a wonderful company," Silva said. "It's got a great base of skilled nursing properties, and it's got two terrific service companies, Aegis and Asera-Care."

Aegis Therapies, which offers rehabilitation therapy to nursing homes in and out of the Beverly chain, saw its revenue climb from $89 million in the first nine months of 2004 to $113 million during the same period in 2005.

AseraCare's revenue also moved from $42.2 million in the first nine months of 2004 to $79.2 million in the same period in 2005. AseraCare serves hospice patients.

"I'm thoroughly behind developing more hospice and home care," Silva said. "Those are two needed services."

A lack of available skilled labor could be a problem for Fillmore.

"We're going to have to continue to promote careers in therapy and in hospice and in home care," he said.

Without proper staffing, some Beverly facilities could be closed.

"We would close a nursing home if it was necessary to close it for the safety of those patients that we were entrusted with," he said. "And if a company didn't make that response, I would kind of be curious about that. Fortunately, we're not facing that yet at any of the properties we know about."

As of Sept. 30, Beverly operated 345 nursing homes, 18 assisted living centers and 66 hospice/home care centers in 23 states and the District of Columbia. Aegis Therapies operates in 36 states.

Government Questions

Before the NASC deal fell apart, government officials in several states questioned the sale and expressed concern about NASC.

In October, the Coastal Bend Chapter of Texas Advocates for Nursing Home Residents urged Texas lawmakers to hold a hearing into whether nursing home ownership changes are putting the state's elderly at risk.

A spokesman for the group said last week that it would wait and see what happens with Fillmore before any other action is taken.

In Arkansas, Bright tried to hold a hearing in October on Beverly's proposed sale to NASC.

"The first hearing was shut down because legislators voted to table the measure," Bright said. "I wanted to hear from NACS how they were planning on operating the nursing homes."

He said an NASC official did show up at a hearing by the House Public Health Committee. And Bright said he was surprised to learn that NASC didn't have a binding agreement to stay in Fort Smith, as it had indicated.

Fillmore's Silva said he doesn't mind people asking questions about his company.

"As a company, you should welcome people looking into what you're doing," Silva said.

But he said that some people criticized the sale for the sake of criticism.

"I don't find that very helpful," Silva said. "Did they point out anything that seems to be wrong? Actually, they didn't."

He said if legislators want to assist the nursing home industry, they should look at inadequate Medicaid reimbursement rates.

Even though the deal with NASC fell apart, Bright said he still has the same concerns with Fillmore.

He said he's sending a letter to Fillmore officials inquiring about their plans. Bright said he would wait to see what happens with the letter before his next move.

"I will go to whatever means that I have to ask and get the answers," Bright said. "Hopefully I'll be more successful in getting answers out of this corporation than I was with NACS or Beverly."

But some legislators have criticized Bright for asking too many questions.

"I know there is some concern thanks to a state legislator out of Maumelle with some actions he took with regards to the initial sale of Beverly," said Tom Manskey, president of the Fort Smith Regional Chamber of Commerce. "I think probably there was some abuse of the system there. And that caused this new buyer to say, 'Hey, look, is this the best business environment to be in?'"

Manskey said he hopes there won't be another hearing about the sale of Beverly.

But Bright said he will do what he has to do to get answers to protect nursing home residents and the tax dollars spent on their care.

In Arkansas, about 75 percent of nursing home patients are paid for by Medicaid.

But Medley said the Office of Long Term Care already regulates nursing homes.

Medley said Fillmore should be given the benefit of the doubt that it is a good company.

"I'm going to do what I can to extend a warm invitation to them that we are pro-business," Medley said. "And [I] would hope they stay in Arkansas and in Fort Smith."

Click here for more on how the Beverly sale could still be derailed.

For a look at Beverly officials' pay from the sale, click here.



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