‘Pioneers’ in Medical Service Spots : TV Ads Draw Patients, Profits to CompCare

Comprehensive Care Corp.’s most controversial television ad features a startling view of a mourning family from inside an open grave.

A somber voice intones: “One in six alcoholics seeks medical care because with treatment they have a good chance of conquering the deadly disease they suffer from. But without treatment, the other five can only look forward to something else.”

Then, the weeping family watches a shovel full of dirt drop into the grave.

The commercial--which prompted a self-described alcoholic to write a letter complaining that it infringed on his constitutional right to drink--and other equally dramatic ones, have been “a springboard to the company’s success,” said B. Lee Karns, CompCare’s founder, chairman and chief executive officer. “We are the pioneer of medical service advertising,” said Karns. The company, which ran its first ads in 1973, spent about $11 million on advertising in fiscal 1985.

Although the riveting campaign developed by Doyle Dane Bernbach International Inc. draws about 25% of CompCare’s patients, it is not the only reason CompCare’s earnings increased 23% and revenues grew by 39% in fiscal 1985.

Healthcare industry analysts say the Newport Beach-based company capitalizes on the increased willingness of people to admit they have alcohol, drug, eating, smoking and psychiatric problems.

CompCare competes directly with dozens of behavioral medicine companies, but rises head and shoulders above most in terms of the number and quality of the programs it operates nationwide, according to health care industry analysts. Its competitors range from giants such as Los Angeles-based National Medical Enterprises Inc. to smaller companies such as Republic Health Corp. of Dallas, which operates the Raleigh Hills alcoholism hospital chain.

All these companies advertise their services, but none as heavily or effectively as CompCare, analysts said. CompCare’s high-quality programs prompted one analyst to describe the company as the “leading light in its niche.”

“What they are doing is a lot different than what anyone else is doing,” said Dr. Jules Marx, president of the Med-Tech division of the investment firm D. H. Blair Co. in New York. “They basically set up franchises within the hospital.”

Behavior Modification

CompCare, which treats about 60,000 patients a year, owns 17 free-standing hospitals and has contracts to operate treatment programs in 149 other facilities around the country. CompCare relies on behavior modification and counseling techniques to treat problems on both an inpatient and outpatient basis.

CompCare also serves a wide range of businesses and organizations including eight Major League baseball clubs, the Royal Bank of Canada and the Federal Aviation Administration’s western region. CompCare’s Santa Ana-based professional and industrial group serves about 30 California companies, including a dozen in Orange County.

Last week, CompCare signed its largest contract to date, expecting to generate $3 million in annual revenues from programs set up at Our Sister of Mercy Hospital in Dyer, Ind. Typically CompCare receives about one-third to one-fourth of the per-patient revenue collected by a contracting hospital, according to a company spokesman.

Analysts say CompCare remains profitable while other hospitals are falling on hard times because the profit margin for psychiatric and chemical-abuse treatment is higher than for standard medical treatments. CompCare’s per-patient costs are generally lower because its patients do not require surgical facilities or other expensive equipment, analysts said.

CompCare also benefits because 96% of its revenues come from private insurance companies or from the patients themselves, compared with acute care hospitals, which depend on the slower-paying and more complicated Medicare or Medi-Cal government insurance programs for about 50% of their revenues.

Hard to Predict Earnings

On the down side, Marx and others said CompCare’s quarter-to-quarter earnings are difficult to predict because the company’s patient load ebbs and flows more than a traditional hospital operation.

Still, net income for the 1985 fiscal year ended May 31 increased to $17.2 million from $14.1 million, and revenues grew to $158 million from $114 million. Karns predicts the company will surpass the $200-million revenue mark in fiscal 1986 and reach $250 million in fiscal 1987.

Karns takes credit for helping to bring serious, but treatable health problems “out of the closet.”

In recent years, he said, the stigma attached to getting help for drinking or drug use has lessened. “We see them as sick people trying to get well,” said Karns, an impeccably dressed man who fancies monogrammed cuffs and sports a diamond ring.

“There is a growing awareness in corporate America to use these services,” said Barbara Santry, a health care analyst for Alex Brown & Sons in Baltimore. “The contribution to society per dollar spent on treating an alcoholic is greater than for heart surgery,” Santry said, noting that both diseases keep otherwise productive workers off the job. She said it costs about $7,000 to treat an alcoholic in a CompCare CareUnit, compared with as much as $100,000 for heart-bypass surgery.

Ultimatum to Get Help

A company that gives an employee an ultimatum to get help has “a pretty good hammer,” said Karns, a 55-year-old accountant and former health care consultant.

“We have definitely seen a rise in the interest of companies wanting to provide support services,” said Jenny Danenhauer, manager of professional and industrial services for CompCare’s Santa Ana Lifestyle Clinic.

“Most of the time, a company calls us about a specific employee and we try to get the employee to a free consultation,” Danenhauer said.

Each year, between 75 and 100 employees at MAI Basic Four Inc., a Tustin computer products company, turn to CompCare’s employee assistance program for help, according to Anna Boyce, Basic Four’s occupational health nurse. “The program gives the employee confidentiality. It is not necessary for management to know they are getting help,” said Boyce. “As a nurse, I can honestly say we couldn’t have contacted a better group.”

Boyce said CompCare always finds help “to fit the employee’s pocketbook,” whether or not it is in one of their own treatment programs. The company contracts with private counselors and professionals to provide services around the country.

“The caliber of CompCare’s treatment program is excellent,” said Dr. U. A. Sexton, regional flight surgeon for the FAA in Los Angeles. Sexton said about 3,000 FAA employees in Arizona, California, Hawaii, Nevada, Samoa and other Pacific islands are eligible for CompCare programs.

‘Multitude of Problems’

“We wanted something that offered a resource to cover a multitude of problems for our employees and their families,” said Sexton. “CompCare always seems to find (a) solution.”

About 62% of CompCare’s patients are sober after one year, according to Karns. After going through the program two times, the rate increases to 80%. Patients receive free follow-up care if they slip off the wagon.

Karns founded CompCare 13 years ago because “I could see one of the things missing from the hospital was behavioral medicine services.”

Each day, with his trained accountant’s eye, Karns reviews a computer printout detailing activities at each CompCare facility. “Beds are perishable,” he said, meaning if the bed is empty at midnight, it can never contribute to that day’s profits again.

Meanwhile, Karns said, CompCare is “on the prowl for acquisitions,” but he declined to elaborate on plans to acquire specific companies. The company is flush with cash, having raised $46 million through an offering of convertible subordinated debentures in April, 1985. The offering helped CompCare end its May 31 fiscal year with $65 million in cash.

The company’s stock, traded on the National Market System, reached a 1985 high of $25.25 in early July. On July 16, the company completed a 4-for-3 stock split. CompCare stock closed Friday at $18.13 a share, up 13 cents.

Karns said fiscal 1986 promises to be an important year. In October, CompCare, which employs 3,660 nationwide, plans to move into its new 75,000-square-foot headquarters in Irvine. The company also plans to open new hospital facilities in Coral Springs, Fla., this year and begin construction on facilities in Chicago, Orlando and Seattle.

New Brea Hospital

And, in the spring of 1986, CompCare plans to replace its 142-bed Brea Neuropsychiatric Center with a new $12-million, 150-bed psychiatric hospital.

One factor that may affect CompCare’s future earnings is California’s decision to abolish the statewide “certificate of need” process on Jan. 1, 1987. Now, in order to regulate the number of hospitals in an area and limit health care costs, hospital owners must submit to a lengthy review by the local Health Systems Agency before they can build or expand their facilities. Karns said that although more companies will probably enter CompCare’s market, “we think we’ll do well.”

One analyst said CompCare may even benefit from deregulation because it could provide the treatment programs for other companies building new hospitals.

Because CompCare is profitable, Karns said, he feels a corporate responsibility to the community. Each year, the company provides more than $1 million in free services to a variety of people and organizations.

The company contributes about $250,000 a year in services and support to New Directions for Women, a Costa Mesa halfway house for recovering alcoholic women.

CompCare’s nonprofit Care Institute sponsors substance-abuse research. Its publication division produces about 200 health care books, pamphlets and audio and video cassettes. Each year, CompCare’s Impact program provides free training to thousands of educators and others dealing with adolescent drug and alcohol abuse problems.

TV Spots Attract Calls

The impact of its commercials is felt at CompCare’s Santa Ana Call Center, which receives up to 5,000 calls each month on its toll-free hot lines. One of the center’s most experienced counselors is a 71-year-old woman married to a recovering alcoholic.

“The majority of the calls are from the significant other,” such as husbands, wives and children, said Rhonda Phillippi, manager of the Call Center, which is located in CompCare’s Lifestyle Clinic. “The abuser doesn’t see there is a problem.”

She said the center’s goal is “not to counsel or make them feel better, but to get them to see someone face-to-face.”

Each day, in Southern California alone, Call Center counselors set between four and 20 appointments for people.

Pat Dillard, manager of CompCare’s Lifestyle Clinic, said the clinic’s goal is to “be effective immediately and keep it simple, one step at a time.” Anyone who needs it, can arrange to meet with a degreed counselor for one hour at no charge. After that, the counselor suggests other avenues for help, including services not offered by the company.

Since 1981, Comprehensive Care Corp. has doubled the types of programs it runs. In 1981 (top), chemical dependency programs for adults accounted for 91% of the company’s business. But by the end of fiscal 1985 (bottom), adult dependency programs totaled only 59% of CompCare’s business, despite an increase in the programs it managed (left).

Comprehensive Care Corp. Revenue and Earnings in (millions of dollars)

1981 1982 1983 1984 1985 Net Revenue $52.75 $73.48 $89.38 $113.68 $158.53 Net Earnings $4.63 $7.58 $10.76 $14.06 $17.22