Beverly Enterprises said Monday that soaring labor costs and declining occupancy at the Pasadena company's nursing homes will result in a loss for the fourth quarter as well as all of 1987.
What's more, the cost of wage increases, training and other programs to attract staff and boost occupancy rates will yield a loss in the first half of this year, the company said.
But reductions in management staff and costs designed to trim overhead by more than $20 million on an annual basis will bring the nation's largest nursing home operator back to profitability in the second half of the year, Beverly President David Banks said.
"It's just getting very difficult to hire and maintain especially nurses but also service workers," Banks said. "It's the tightest labor market that I've seen in this business in the last 20 years."
The company did not disclose the size of the anticipated losses, which will be reported by the end of the month. In 1986, Beverly recorded a fourth-quarter loss of $1.6 million on revenue of $526.4 million. For the entire year, net income totaled $44.9 million on revenue of $2 billion.
Banks said operating costs have risen sharply in the past six months because the company is paying higher wages to attract personnel, is increasing staff to care for sicker patients and is being forced to hire high-cost temporary help because of a nationwide shortage of nurses and a lack of service workers that is exacerbated by immigration reform. Those factors have combined to increase operating costs by more than $100 million on an annual basis.
The problem of rising labor costs is industrywide, said James B. Hoover, a New York-based analyst with the Robertson, Colman & Stephens investment banking firm. "What the industry needs is a good recession. When people here in New York can get twice the minimum wage working at McDonald's, they're not going to work at a nursing home," he said.
Beverly will lay off an undetermined number of management personnel across the country by the end of March but will increase staff at the nursing homes, he said.
Occupancy at Beverly's nursing homes dropped to 88% in 1987 from an average of 90% during the previous three years as hospitals increasingly have used their surplus hospital beds to retain Medicare patients rather than transferring the patients to nursing homes, the company said. The shortfall resulted in a revenue loss of about $38 million for 1987, Beverly said.
Medicare patients accounted for almost 4% of revenue three years ago, Banks said. That figure has shrunk to 1%, he said.
Beverly Enterprises operates 1,125 nursing homes with 113,000 beds in 45 states and the District of Columbia. The company also operates home health-care agencies, retirement projects and pharmacies.