Caremark Inc. Reports Record Sales, Earnings
Caremark Inc. reported record revenues and net income for fiscal 1985 that industry analysts credit to the return of founder and Chairman James Sweeney, who resumed control of day-to-day operations one year ago.
The Newport Beach-based company, which specializes in providing intravenous nutritional and drug services, said net income for the fiscal year ended June 30 increased fivefold to $7.4 million, from $1.4 million, and revenues increased 49% to $74 million, from $49.7 million. Fourth quarter net income grew 69% to $2.2 million, from the $1.2 million a year earlier, while revenue rose 72% to $23 million, from $13.3 million the prior year.
“We’re delighted with the company’s performance,” said Sweeney, who is also the chief executive. “We’ve shown steady growth for six quarters and posted record revenues and earnings for the last four quarters--and our momentum continues.”
Since Sweeney’s return to the helm of the company he founded six years ago, Caremark, formerly known as Home Health Care of America, acquired a mail-order prescription business and a respected health care industry research group. Sweeney had stepped aside to work on long-term corporate strategy after Robert Byrnes was appointed president in February, 1983. Sweeney said he returned because, “I recruited a president and it didn’t work out.”
Byrnes, who has since founded an Irvine-based company that is developing devices to monitor a patient’s condition while at home, said Sweeney’s remarks are a “fair characterization” of what happened at Caremark. He said their management styles were different.
Excitement About Jobs
The key to Sweeney’s success, employees said, is his hands-on style of management. He is known to call employees in the middle of the night to discuss ideas or problems and generally gets workers excited about their jobs.
One of the more important accomplishments of the past year was to improve the company’s ability to get clients reimbursed by insurance companies and government agencies for home services. The company also expanded the nature of its services to include pain management, anti-viral treatments and treatments for AIDS.
Sweeney also brought some new blood into the company: Lawrence Higby, formerly vice president of marketing for Pepsi Cola USA, was named president of Caremark’s America’s Pharmacy unit; Dr. Paul Gertman, a recognized authority on the health care industry, was named chairman of the Health Data Institute unit and most recently V. Gordon Clemmons, formerly president of Intracorp, which specializes in rehabilitation services, was named president of Caremark’s Home Health Care of America division.
Sweeney Cites Changes
“Caremark has changed in the last 12 months as much as it has in the prior three to four years,” said the 42 year-old Sweeney. He said Caremark is trying to respond to the “$400 billion national health market which is in a state of flux.”
The uncertainty was created when the federal government, in response to skyrocketing health care costs, recently set limits on payments for nearly every medical procedure covered by government-sponsored insurance programs. The strict limits prompted a massive shakeout and tremendous consolidations in the health care field.
“The way that the health care industry is changing is just phenomenal,” said William Michalak, vice president of research for Robinson-Humphrey Co. in Atlanta, Ga. “Companies have to be fleet of foot to mold themselves and take advantage of the changing environment.” He said Caremark needed Sweeney’s entrepreneurial style of leadership to survive and flourish in the changing market. “The biggest positive in my mind was hearing that Jim was getting back into the day-to-day operations,” said Michalak.
Fast-Growing Company
Sweeney, who says he does some of his best work between 3 a.m. and 6 a.m., proudly noted that Caremark was recently named the 25th fastest growing, publicly held U.S. company by Inc. magazine. His goal is to reach $500 million in sales by 1990.
In fiscal 1985, Caremark spent about $15 million in cash and stock to acquire two companies. It bought a Des Moines, Iowa, mail-order prescription company, renamed America’s Pharmacy, and the Boston-based Health Data Institute, which develops computer programs to monitor health care costs for major companies. Sweeney describes HDI as “a fiber optic device looking over the horizon of health care.”
Despite the takeovers, Sweeney said Caremark is “not on an acquisition binge.” He said 1985’s real growth was in its primary home health care businesses because the two new companies contributed only $2 million to $3 million to the $74 million fiscal 1985 revenues.
Caremark focuses on keeping chronically ill patients out of the hospital because “a hospital is the most expensive and least desirable place to be” if you are sick, according to Sweeney.
‘High-Tech Home Care’
The company’s custom-mixed nutritional products intravenously nourish those who cannot eat regular food. Caremark also provides home antibiotic therapy, chemotherapy for cancer patients and a variety of other nursing and health care services. Sweeney estimates that the new “high-tech home care” industry has grown to more than $500 million a year. According to a recent study by Hambrecht & Quist in San Francisco, the home infusion therapy market is expected to grow to nearly $1 billion in 1988. In 1984, sales reached about $277 million.
Sweeney said Caremark’s innovative home health care services still face reimbursement problems from the government and private insurance companies.
Many government agencies and traditional insurance companies familiar with paying doctor and hospital bills have a hard time figuring out how to pay for Caremark’s high-technology home health care services, Sweeney said. In the second quarter of fiscal 1984, the company took a $4 million charge to cover doubtful accounts. After that, the company increased the percentage of its revenues reserved for doubtful accounts from about 9% to 15%.
$9 Million for Charity
“We write off 15% of our revenues to basically provide about $9 million a year in charity care,” said Sweeney. He said company policy prohibits cutting off service to patients just because of reimbursement problems. In fact, a staff of 50 Caremark employees does nothing but fill out insurance forms. In one recent case, Caremark helped an elderly woman fight the government for two years to receive payment for her life-saving nutritional therapy. The company continued providing $6,000 a month in services during the battle.
Still, Sweeney said, “Medi-Cal is a complete disaster. They don’t even have a (computer) software system that knows how to pay us.” Medi-Cal provides medical insurance to indigent California residents.
