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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): October 21, 1997
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VENCOR, INC.
(Exact name of registrant as specified in its charter)
Delaware 1-10989 61-1055020
(State or other jurisdiction of (Commission File Number) (IRS Employer
incorporation or organization) Identification No.)
400 West Market Street
Louisville, Kentucky
(Address of principal executive offices)
40202
(Zip Code)
Registrant's telephone number, including area code: (502) 596-7300
Not Applicable
(Former name or former address, if changed since last report.)
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ITEMS 1-4. NOT APPLICABLE.
ITEM 5. OTHER EVENTS.
Vencor, Inc., a Delaware corporation (the "Company") is filing certain
"Cautionary Statements" for the purpose of establishing a readily available
document which may be referenced pursuant to the "safe harbor" provisions of the
Private Securities Litigation Reform Act of 1995. Such Cautionary Statements
are attached as Exhibit 99.1 and are incorporated herein by reference.
ITEM 6. NOT APPLICABLE.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial statements of businesses acquired.
Not applicable.
(b) Pro forma financial information.
Not applicable.
(c) Exhibits.
Exhibit 99.1 - Cautionary Statements.
ITEMS 8-9. NOT APPLICABLE.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
VENCOR, INC.
Dated: October 21, 1997 By: /s/ W. Bruce Lunsford
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W. Bruce Lunsford
Chairman of the Board,
President and Chief
Executive Officer
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Exhibit 99.1
CAUTIONARY STATEMENTS
Information provided by the Company from time to time may contain certain
"forward-looking" information as that term is defined by the Private Securities
Litigation Reform Act of 1995 ("Act"). These Cautionary Statements are being
made pursuant to the provisions of the Act and with the intention of obtaining
the benefits of the "safe harbor" provisions of the Act. The Company cautions
investors that any forward-looking statements made by the Company are not
guarantees of future performance. Moreover, the Company wishes to caution
investors that the following important factors, among others, in some cases have
affected, and in the future could affect, the Company's actual results and could
cause the Company's actual results, including its financial condition, results
of operations and liquidity, to differ materially from those expressed in any
forward-looking statements made by, or on behalf of, the Company:
- The Company derives a substantial portion of its net operating revenues
from third-party payors, including the Medicare and Medicaid programs. Such
programs are highly regulated and subject to frequent and substantial changes.
The recently enacted Balanced Budget Act of 1997 (the "Budget Act") is intended
to reduce Medicare payments by $115 billion over the next five years and makes
extensive changes in the Medicare and Medicaid programs. In addition, private
payors, including managed care payors, increasingly are demanding discounted fee
structures and the assumption by healthcare providers of all or a portion of the
financial risk. Efforts to impose greater discounts and more stringent cost
controls by private payors are expected to continue. There can be no assurances
that adequate reimbursement levels will continue to be available for services
provided by the Company which are currently being reimbursed by Medicare,
Medicaid or private payors. Significant limits on the scope of services
reimbursed and on reimbursement rates and fees could have a material adverse
effect on the Company's financial condition, results of operations and
liquidity.
- The healthcare industry is subject to extensive federal, state and local
regulation including, but not limited to, regulations relating to licensure,
conduct of operations, ownership of facilities, addition of facilities, services
and prices for services. In particular, Medicare and Medicaid antikickback,
antifraud and abuse amendments codified under Section 1128(B)(b) of the Social
Security Act (the "Antikickback Amendments") prohibit certain business practices
and relationships that might affect the provisions and cost of healthcare
services reimbursable under Medicare and Medicaid, including the payment or
receipt of remuneration for the referral of patients whose care will be paid by
Medicare or other governmental programs. Sanctions for violating the
Antikickback Amendments include criminal penalties and civil sanctions,
including fines and possible exclusion from government programs such as the
Medicare and Medicaid programs.
Pursuant to the Medicare and Medicaid Patient and Program Protection Act of
1987, the Department of Health and Human Services has issued regulations that
describe some of the conduct and business relationships permissible under the
Antikickback Amendments ("Safe Harbors"). The fact that a given business
arrangement does not fall within a Safe Harbor does not render the
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arrangement per se illegal. Business arrangements of healthcare service
providers that fail to satisfy the applicable Safe Harbors criteria, however,
risk increased scrutiny and possible sanctions by enforcement authorities.
The Health Insurance Portability and Accountability Act of 1997, which
became effective January 1, 1997, amends, among other things, Title XI (42
U.S.C. 1301 et seq.) to broaden the scope of current fraud and abuse laws to
include all health plans, whether or not they are reimbursed under federal
programs.
In addition, Section 1877 of the Social Security Act, which restricts
referrals by physicians of Medicare and other government-program patients to
providers of a broad range of designated health services with which they have
ownership or certain other financial arrangements, was amended effective January
1, 1995, to significantly broaden the scope of prohibited physician referrals
under the Medicare and Medicaid programs to providers with which they have
ownership or certain other financial arrangements (the "Self-Referral
Prohibitions"). Many states have adopted or are considering similar legislative
proposals, some of which extend beyond the Medicaid program to prohibit the
payment or receipt of remuneration for the referral of patients and physician
self-referrals regardless of the source of the payment for the care. These laws
and regulations are extremely complex and the industry has the benefit of little
judicial or regulatory interpretation. The Company does not believe its
arrangements are in violation of the Self-Referral Prohibitions. There can be
no assurance, however, that governmental officials charged with responsibility
for enforcing the provisions of the Self-Referral Prohibitions will not assert
that one or more of the Company's arrangements is in violation of such
provisions.
The Budget Act also provides a number of new antifraud and abuse
provisions. The Budget Act contains new civil monetary penalties for violations
of the Antikickback Amendments and imposes an affirmative duty on providers to
insure that they do not employ or contract with persons excluded from the
Medicare program. The Budget Act also provides a minimum ten year period for
exclusion from participation in federal healthcare programs for persons
convicted of a prior healthcare offense.
Some states require state approval for development and expansion of
healthcare facilities and services, including findings of need for additional or
expanded healthcare facilities or services. Certificates of Need ("CON"), which
are issued by governmental agencies with jurisdiction over healthcare
facilities, are at times required for expansion of existing facilities,
construction of new facilities, addition of beds, acquisition of major items of
equipment or introduction of new services. The Company operates hospitals in
several states that require state approval for the expansion of its facilities
and services under CON programs. There can be no assurance that the Company
will be able to obtain a CON for any or all future projects. If the Company is
unable to obtain the requisite CON, its growth and business could be adversely
affected.
The Company is unable to predict the future course of federal, state and
local regulation or legislation, including Medicare and Medicaid statutes and
regulations. Changes in the regulatory framework could have a material adverse
effect on the Company's financial condition and results of operations.
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- Healthcare is one of the largest industries in the United States and
continues to attract much legislative interest and public attention. The Budget
Act, enacted in August 1997, contains extensive changes to the Medicare and
Medicaid programs intended to reduce payments under those programs by $115
billion and $13 billion, respectively, over the next five years. Under the
Budget Act, annual growth rates for Medicare were reduced from over 10% to
approximately 7.5% for the next five years based on specific program baseline
projections from the last five years. Virtually all spending reductions will
come from providers and changes in program components. The Budget Act affects
reimbursement systems for each of the Company's operating units.
The Budget Act will reduce payments to many of the Company's facilities,
including, but not limited to, payments made to the Company's hospitals, by
reducing incentive payments pursuant to the Tax Equity and Fiscal Responsibility
Act of 1982 (TEFRA), reducing allowable costs for capital expenditures and bad
debts and reducing payments for services to patients transferred from a
prospective payment system hospital. The Budget Act also requires the
establishment of a prospective payment system for nursing centers for cost
reporting periods beginning on or after July 1, 1998. During the first three
years, the per diem rates for nursing centers will be based on a blend of
facility-specific costs and federal costs. Thereafter, the per diem rates will
be based solely on federal costs. The rates for such services have not been
established or published. The prospective payment system also will cover
ancillary services provided to nursing center patients under the Company's
Vencare contract services business. The Budget Act also requires the
establishment of an interim prospective payment system for home health services
for cost reporting periods beginning on or after October 1, 1997. The interim
system will establish per visit limits and per beneficiary annual limits. A
permanent prospective payment system for home health services will be
established by October 1, 1999.
In March 1997, the Health Care Financing Administration ("HCFA") issued a
proposed rule to change Medicare reimbursement guidelines for therapy services
provided by the Company (including the rehabilitation contract therapy business
acquired as part of the acquisition of TheraTx, Incorporated.) Under the
proposed rule, HCFA would revise the current salary equivalency guidelines for
speech and occupational therapy services. The proposed guidelines are based on
a blend of data from wage rates for hospitals and nursing facilities, and
include salary, fringe benefit and expense factors. Rates are defined by
specific geographic market areas, based upon a modified version of the hospital
wage index. HCFA is considering comments but has not issued a final rule at
this time. The Company cannot predict when the final regulation will be issued
or if changes will be made to the proposed guidelines.
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There also continue to be state legislative proposals that would impose
more limitations on government and private payments to providers of healthcare
services such as the Company. Many states have enacted or are considering
enacting measures that are designed to reduce their Medicaid expenditures and to
make certain changes to private healthcare insurance. Some states also are
considering regulatory changes that include a moratorium on the designation of
additional long-term care hospitals and changes in the Medicaid reimbursement
system for long-term care hospitals. There are also a number of legislative
proposals including cost caps and the establishment of Medicaid prospective
payment systems for nursing centers. Moreover, by repealing the Boren Amendment,
the Budget Act eases the restrictions on the states' ability to reduce their
Medicaid reimbursement levels.
There can be no assurance that the Budget Act, proposed salary equivalency
rates, future healthcare legislation or other changes in the administration or
interpretation of governmental healthcare programs will not have a material
adverse effect on the Company's financial condition, results of operations and
liquidity.
- There can be no assurance that the Company will be able to continue its
growth or be able to successfully implement its strategy to develop long-term
healthcare networks, including through acquisitions. There can be no assurance
that suitable acquisitions, for which other healthcare companies (including
those with greater financial resources than the Company) may be competing, can
be accomplished on terms favorable to the Company or that financing, if
necessary, can be obtained for such acquisitions. The Company may not be able
to effectively and profitably integrate the operations of acquired entities or
otherwise achieve the intended benefits of such acquisitions. In addition,
unforeseen expenses, difficulties, complications or delays may be encountered in
connection with the expansion of operations, which could inhibit the Company's
growth.
- The healthcare services industry is highly competitive. The Company
faces competition from general acute care hospitals and general long-term care
hospitals which provide services comparable to those offered by the Company's
hospitals. Many general acute care hospitals are larger and more established
than the Company's hospitals. Certain hospitals that compete with the Company's
hospitals are operated by not-for-profit, nontaxpaying or governmental agencies,
which can finance capital expenditures on a tax-exempt basis, and which receive
funds and charitable contributions unavailable to the Company's hospitals.
Management believes that the Company may experience increased competition from
existing hospitals as well as hospitals converted to specialized care facilities
and long-term hospitals located within general acute care hospitals. The
Company's nursing centers compete on a local and regional basis with other
nursing centers, and competition also exists for the Vencare health services
program. Management also expects that the Company will continue to compete with
other healthcare companies for hospital and other healthcare acquisitions.
