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The Grancare Heritage:- Mariner was formed from a number of other groups during the merger mania of the mid-1990's. It was built on the financial success of Grancare, a company with a reputation for understaffing and very poor standards of care. There is much to suggest that Grancare's financial success was built on not providing the care it was paid to provide. Grancare escaped its past by changing its name and by adopting the names of the corporations that it acquired.
Grancare becomes Paragon:- In 1997 two financial groups, Apollo Management and Lehman Brothers, a group with an investment in ARV Assisted Living Centers stitched up a US $1.8 billion merger for Atlanta based Grancare to acquire Living Centers of America. The new company was called Paragon Healthcare. Grancare paid $1,100 for Living Centers - a large debt. A report 2 years later talks of Apollo as Mariner Post-Acute Care's principal equity investor. It seems likely that Apollo largely bankrolled this and subsequent mergers. A later report also mentions the Chase Manhattan Bank as holding debt.
Grancare, among the largest nursing home chains in 1997 had a very poor history. It was accused of understaffing and poor care. Its facilities were repeatedly cited by investigators and many of its homes were ranked among the worst in an investigation by "Consumer Reports", a consumer's group magazine. In Iowa its homes spent much less on care than its competitors and it was heavily fined for multiple violations.
ARV Assisted Living Centers was not part of the deal. I have other reports which suggest that it remained independent into 2001.
The new company operated 325 long-term-care facilities (38,000 beds) in 21 states, 34 institutional pharmacies in 11 states and more than 130 rehabilitation outpatient clinics in 18 states. Its estimated revenues were $1.9 billion and it became the third largest U.S. long-term care company.
Keith B. Pitts was the new chairman of Paragon. He was previously chief financial officer of Nashville-based OrNda HealthCorp, the company fined US$12 million for paying kickbacks to doctors.
Mariner Health Group:- Mariner Health Group was by 1998 one of the larger nursing home chains. It owned a substantial number of homes in Florida where reports indicate that it had a poor record for care. One review quotes a state inspection that revealed severe understaffing and serious deficiencies in care as a consequence. It seems that advertising for new staff may have been deliberately restricted in order to keep costs down.
Staffing Deceit:- In 2001 companies including Mariner are loudly claiming that they can't get staff because of a nursing shortage. This is why there are problems in care. It must be remembered that in the early and mid-1990's chains deliberately understaffed in order to cut costs and boost the income needed for acquisitions. Their practices drove nurses out of the industry. Medicaid paid for the majority of patients. Payments were fixed and the system could not be exploited. If a company failed to cut costs then they would not make large enough profits to prevent them from being taken over. The major costs were nursing and equipment. One analyst lists Mariner as a potential takeover target.
In 1997 Mariner Health Group acquired Prism Health Group for a modest $92 million. Mariner Health Group also merged with Amerra Health Network on July 31, 1998.
Paragon Acquires Mariner to become Mariner:- The takeover of Mariner by Paragon in July 1998 was orchestrated by Leon Black, a former junk bond trader. It became the second largest chain in the USA. While Paragon was the surviving entity the new group was called Mariner Post-Acute Network. Pitts remained chairman. I am informed that Dr. Stratton chairman and CEO of Mariner was terminated and received a cash payment of approximately $17.2 million. He stayed on as COO.
The new name suggests a prime emphasis on
Medicare paid post-acute care - a gravy train, which had already been
turned off. Mariner targeted Medicare patients which composed 21% of
its revenue, more than double the national average. One cannot help
but feel that there was this roller coaster Medicare feeding frenzy.
Everyone rushed to cash in on the profits which others showed could
be obtained from Medicare. No one stopped to look at what was
actually happening to the Medicare system.
Mariner had now established a vast integrated empire supplying an extensive range of services. Management believed that Mariner was in a position to capitalise on the opportunities offered by the patients in its care, particularly Medicare patients. It had established market dominance in a number of areas.
It was not long before Mariner was reaping the consequence of all this stupidity. It never made any money and in November 1998 the 4 month old Mariner Post-Acute care was put on "credit watch by Standard and Poor. Within 6 months it was selling parts of its empire, starting with home care which was no longer profitable. At the same time it went to its creditors to renegotiate loans. It sustained large losses each quarter and Its share prices tumbled. By March 1999 Standard and Poor had downgraded it.
In May 1999 it sold off its rehabilitation contracts and closed down its rehabilitation subsidiary firing over 7000 staff. Keith Pitts the chairman and CEO who had been the chairman during the mergers and rapid growth in 1997 and 1998 left the company in June 1999. Other senior staff left soon after. The company was run by a committee for a while. Francis W. 'Butch' Cash was then appointed as chairman and CEO but he did not stay for long.
Mariner violated its covenants in June 1999.
By August 1999 Mariner was losing money and in serious trouble. It
could not meet its "Paragon Debt" repayments. An analyst commented on
the "lack of news coming out of the company". He wondered whether its
principal equity investor Apollo Management would put more cash into
the company to help it. Instead Apollo sold its entire holding in
Mariner in December 1999. Mariner was delisted from the stock
exchange and finally entered Chapter 11 bankruptcy in Jan 2000, less
than eighteen months after it was formed. It continued to sell off
facilities with the approval of the bankruptcy court. It traded out
of bankruptcy after 2 years under the name Mariner Health Care Inc.
The two largest companies in the merger, Grancare and Mariner Health Group both had very poor track records for care in several states. There are several reports of substandard facilities and of understaffing. These are supported by government and other reviews of care.
After the merger Mariners annual report
revealed an intention to address some of the problems in care. The
plans and the industrial frames within which they were to be
implemented were such that they were not likely to care for much more
than the bottom line. While their intentions may have been good the
pressures of the share market imposed their own standards. As a
consequence there is no evidence of any improvement in staffing or
care following the merger. Mariner's homes continued to be cited for
poor care. Some were closed by regulators. There are ongoing reports
of poor care in its nursing homes since it traded out of bankruptcy
in May 2002.
Mariner is one of several nursing home chains
which were investigated for Medicare fraud. The government was
looking for US $150 million from Mariner. There are reports of
racketeering at a Florida nursing home. I have been told that there
was at least one Qui Tam action against the company but have no
details.
Despite its financial woes Mariner continued
to spend large sums on the political process. They employed prominent
people to lobby for them federally and in the states. This sort of
activity was part of the normal cost of doing business. This was
simply money diverted from care to personal advancement and
competition for political favours.
I have no internal memos and the sober financiers do not often speak their minds. The financiers who orchestrated the Grancare to Mariner mergers selected Keith Pitts, a straight down the line believer in the application of market principles to health and aged care. He comes from the Tenet/NME and Columbia/HCA mold. Pitts puts his business thoughts out in a 1998 press release and they are revealing.
Mariner reveals the application of market theory and current market beliefs to aged care in a simple and unimaginative manner. It has not looked at the facts or performed an informed assessment of the situation. It was simply a follower jumping on the bandwagon.
As a consequence Mariner's failures in care, its fraud, and its disservice to its shareholders and to society must be seen as a cultural phenomenon. When we talk about Mariner we can talk about sociopathy but not about successful sociopaths.
The company traded out of bankruptcy under the name Mariner Health Care Inc. in May 2002. At the time it was making a profit. I do not know its current financial status. During 2002 there have been a number of reports indicating that its care remains poor.
In analysing mariner in greater depth I have taken extracts from published material and allowed them to tell the story. I have simply written a short introduction and a few comments to give perspective and explain the context of some extracts.
The extracts on these pages are from copyright material. They are reproduced here for educational purposes and to stimulate public debate about the provision of health and aged care. I consider this to be "fair use" and in the public interest. They should not be reproduced for commercial purposes.
Disclaimer: - The material in these pages is selective and not all-inclusive. The extracts do not necessarily reflect the full perspective of the original. Corporate denials and explanations have not been included. No claim is made that all of the matters referred to are true. The intention is to give the flavour of the material and an idea of the extent of the allegations.
Because of the volume I have divided them
into rough subject areas in separate web pages.
