Apria Eyes Deals, Internal Growth Under New Chief
By VITA REED
Apria Healthcare Group Inc. can lay claim to a turnaround, but the Lake Forest-based home healthcare provider’s new chief executive says he plans to stay a course of internal growth, acquisitions and cost cutting.
“We don’t plan any immediate short-term changes in the strategy because it’s one I helped develop,” said Lawrence Hig-by, who took over as Apria’s chief executive on Feb. 13. “And if you look at our results, our strategies are working.”
Higby, Apria’s president and chief operating officer since late 1997, takes over from Philp Carter, who led a revival of the company in the past four years.
In a memo to workers on the day of his appointment, Higby said Apria would emphasize “our continuing efforts to reduce costs while providing quality patient care and excellent service.”
Acquisitions could be on the table for Apria, Higby said in an interview. The company counted a market value of $1.2 billion last week and in July signed a new $400 million line of credit.
Acquisitions “clearly present us with an opportunity for growth, particularly strategic growth in markets we’re not in that make them very attractive for us,” Higby said.
But Higby said he’s looking to Apria’s existing operations to drive the bulk of the company’s growth. Two-thirds of the company’s $1.1 billion in revenue last year came from respiratory therapy services. Apria also offers home drug infusion treatments and medical gear such as hospital beds and wheelchairs.
“We don’t look (at acquisitions) as the primary source of our growth,” Higby said. “The primary source of our growth comes from growth inside the business, with all of the organizations that we serve.”
The company “Apriatized” or integrated about 14 acquisitions of various sizes last year, Higby said. The deals were financed internally, he said.
Apria had $9 million in cash as of Dec. 31, down from $17 million a year earlier.
“When I got to the company four years ago, debt was over $500 million,” Higby said. “Now it’s down by about $200 million. We significantly decreased our debt with cash generated from internal operations.”
Upgrading technology is another part of Higby’s plan for Apria.
“Information technology is critical to the ongoing success of the whole healthcare industry, whether you’re a hospital, doctor, patient, or a provider or a payer,” he said. “This is such a transaction-intensive business that it requires superior management information systems.”
When Apria announced Higby’s appointment and Carter’s exit, the company’s shares saw some heavy trading. About 3.2 million Apria shares moved that day, vs. 331,600 the previous day. Selling on the news drove the share price down 5.6%.
Analysts say the selloff was an overreaction. Apria’s shares have rebounded from their lows after Feb. 13 but still are off from where they were before the management shift.
“We believe the market overreacted to the news of Mr. Carter’s departure,” wrote Jerry Doctrow, a healthcare services analyst with Legg Mason Wood Walker in Baltimore. “After interviewing Mr. Higby, we believe he knows the company and the industry well and he will continue the successful track record that Phil Carter has established for Apria.”
The timing of the management shift may have caught some by surprise but wasn’t unexpected. In August,
Apria’s biggest shareholder, La Jolla-based turnaround investor Relational Investors LLC, sold most of its stake in the company. Carter had been allied with Relational. Apria’s chairman Ralph Whitworth, is a Relational principal.
Carter came to Apria in 1998, some three years after it was created from the combination of Abbey Healthcare Group Inc. and Homedco Group Inc. Analysts have credited Higby and Carter with improving Apria’s operations by centralizing billing and improving revenue collection, which had nearly sent Apria over the edge into insolvency prior to Carter’s arrival.
“Mr. Carter was widely known as a turnaround specialist, who was likely to leave Apria after its turnaround was completed,” analyst Doctrow wrote.
As for Wall Street, Higby said:
“They perceive us as having turned around and now being a solid company with good growth. The only thing that Wall Street questions about Apria is the same thing it questions about all healthcare, which is reimbursement issues and what the government policies are going to be on that.”
Apria benefits from a diversified business model, Higby said.
“Only about 30% of our business is with the government,” he said. “About 70% is with private payers or large MCOs, health plans and that sort of thing. We’ve got a very balanced portfolio business, so we’re not as vulnerable to reimbursement issues as some of our competitors might be.”
Apria’s rivals include American HomePatient Inc. of Brentwood, Tenn., Lincare Holdings Inc. of Clearwater, Fla., and Coram Healthcare Corp. of Denver, which is undergoing bankruptcy reorganization.
Apria employs more than 7,880 people companywide, including around 550 in Orange County.
“We think that home healthcare, over the next 10 years, is only going to continue to grow at a very fast rate because it’s so much more cost-effective than having a patient stay in the hospital,” Higby said. “It provides for superior recovery and psychological well-being while you recover.”
Late last year, Apria moved from its longtime Costa Mesa corporate base to new Lake Forest offices. George Argyros, the new U.S. ambassador to Spain and longtime Orange County businessman, has been a significant investor in the company.
