Alleged ‘Corporate Raid’ Hurts Brookdale’s Home Health Business

Like the rest of its business, Brookdale Senior Living’s (NYSE: BKD) home health segment didn’t fare so well this past quarter.

The nation’s sixth-largest home health provider is blaming “an aggressive and egregious corporate raid in southern Florida” for the poor performance of its home health, hospice and outpatient therapy business segments specifically, according to executives on its third-quarter 2016 earnings call Tuesday.

Brookdale’s third-quarter 2016 revenue of $1.25 billion missed analysts’ expectations by $10 million. Similarly, the company’s third-quarter 2016 earnings per share of 28 cents missed analysts’ expectations by 17 cents. The company’s shares were down more than 18% at market close.

Brookdale’s ancillary services business, which includes home health, hospice and outpatient therapy, also took a hit this quarter, with operating income falling 16.1% from the third quarter of 2015 to $14.6 million in the third quarter of 2016. 

The drop in operating income, in part, is being attributed to the effects of a corporate raid in southern Florida, Brookdale CFO Cindy Baier explained during the earnings call.

Specifically, more than 20 associates from Brookdale’s community-based home health business in Florida, Nurse on Call Home Health Care, joined a new organization that competes directly with Nurse on Call earlier this year. There, the former Nurse on Call associates allegedly engaged in illegal activity that negatively impacted Brookdale’s bottom line.

“We believe that several of these former associates, on behalf of their new employer, are or have been directly soliciting our patients, referral sources, and associates in violation of non-solicitation agreements, and are engaging in other behaviors that violate Florida state law to our financial detriment,” Baier said.

Brookdale has filed legal action against a number of its former associates and their new employer, she added. The revenue decline that has resulted from this corporate raid has impacted Brookdale’s ancillary services operating margin, knocking it down from 15.4% in the second quarter of 2016 to 12.5% in the third quarter of 2016.

“We are aggressively pursuing all availabile legal remedies in connection with the situation while [we] replace staff and recover our lost business,” Baier said.

Brookdale acquired Nurse on Call when it merged with Emeritus Corp. in 2014. The largest senior living provider in the country has had some difficulty with its ancillary services business in recent years, but in an August press release, Brookdale President and CEO Andy Smith described the second quarter of 2016 as revealing “the beginnings of a recovery in [Brookdale Senior Living’s] ancillary business.”

Meanwhile, Brookdale’s hospice business is currently “doing very well,” Baier said on the company’s third-quarter 2016 earnings call Tuesday. And the company has plans to place its ancillary services segment as a whole back on the right track.

“Going forward, we are focused on improving our ancillary service business by rationalizing our outpatient therapy business, improving our preferred provider relationship with our communities, recovering the lost Florida business, and growing our hospice business,” Baier said.

Written by Mary Kate Nelson