The new reimbursement policy brought a revolution to health care that you can see today: the average patient stays in the hospital fewer days and the percentage of empty hospital beds has increased. Since idle capacity is as bad for hospitals as it is for steel companies, such for-profit hospital chains as Humana Inc. are locked in an increasingly hot battle to attract patients. Their strategy: start or acquire HMOs and walk-in medical offices -- and use them to funnel patients into their hospitals.
"A window we had thought would be open wider, for longer, was closing fast," says Bredesen. "When we started out, we thought we had, oh, five or six years. We began to see that we didn't.The market was getting flooded." So HealthAmerica shifted strategy, acquiring and starting HMOs instead of just managing them. "We acquired some that were in worse condition than we would have wanted, that we probably wouldn't have bought if time had been on our side -- but they were available, we could get them, and we had to establish our presence in the market in a relatively short time." By early 1986, HealthAmerica owned or managed HMOs in 38 markets, with an aggregate enrollment of 895,000 patients. With revenues of $462.8 million and earnings of $11.5 million, it is now one of the largest operators of HMOs.
The same big move to contain health costs created an opportunity for James Sweeney. In 1979, Sweeney, who had spent four years as a health-care consultant for Arthur Young & Co., founded Home Health Care of America Inc. to deliver complex medical support services to patients at home. "My background in the industry gave me more of a macroview," says Sweeney, "but when we started, there was still such a strong bias toward hospitals that we didn't get a dollar's worth of [carrier] reimbursement for the services we offered. That situation and the malpractice issue made venture capital people very skeptical of us -- in fact, the first eight or nine turned us down. But logic was on my side. I knew something had to give within the system. Except for Medicare, the last big wave of federal legislation had come in the 1930s. Since then, everyone had been well served but the patient."
The company, which became profitable in its second year, has introduced such services as home chemotherapy and home antibiotic infusion therapy. It was positioned perfectly for the cost-control move that resulted in patients leaving costly hospital beds much sooner than before -- leaving hospital beds for beds at home, where Home Health Care could pick up the treatment.
Sweeney didn't stop there. Last year, Home Health Care acquired two companies, exploiting different opportunities in medical cost control. One, renamed America's Pharmacy Inc., feeds off the home-care division by providing drugs and other medical products by mail order. The other, Health Data Institute Inc., helps insurance carriers and big companies pare down their medical costs. It provides analysis and management systems to prevent unnecessary expenditures and inappropriate use of medical services. Folded into a holding company called Caremark Inc. (#76), the three businesses generated sales of $74 million and earnings of $7.4 million last year.
Caremark must grow to $500 million by 1990 just to survive, says Sweeney. "When you look at the $5 billion to $6 billion spent annually on home health care in this country and realize no one company has more than 1% of that market, you have to believe that consolidation within this industry has only begun. I expect about 15 'supermeds' to emerge within the next 5 to 10 years, and it's my job to stay ahead of the power curve."
For at least one INC. 100 company, staying ahead of the power curve is more than a turn of phrase, it's a way of life -- albeit an increasingly tenuous one. Identifying an opportunity and exploiting it are not always enough for an entrepreneur. The market that creates an opportunity can take it away, too.
It all looked so promising once for Solar Age Industries Inc. (#27), of Albuquerque. When it was founded in 1979, the price of oil was approaching its all-time high. Federal energy tax credits gave consumers an incentive to buy solar equipment, and enough did so to spur the growth of the industry from 45 companies in 1974 to more than 200 a decade later.
Ronald L. Wilder, a distributor of American Indian art, helped start one of those companies, Solar Age, after he saw a window solar collector at a home show. "Everybody was looking for energy-saving devices," says Wilder, the president. "The news media made everything look devastating, every paper or magazine you opened, every TV or radio you turned on, there it was. I think that just about everybody in the country was worrying, 'What's going to happen to my fuel bills?' I thought you could put a bunch of these [solar collectors] on a truck and go up and down the street and sell 'em like watermelons."
They sold well enough to launch Solar Age to $15.3 million in sales last year. But this year the bottom has fallen out of the market. The federal energy tax credits that made homeowner investment so attractive expired at the end of 1985, and Congress has been wrangling over an extension. U.S. crude oil prices have plunged from more than $36 a barrel to less than $14 in March, allaying concerns about energy costs and widening the competitive gap between oil and solar. Experts predict that half or more of the solar industry will fold if Congress doesn't help.
Will Solar Age be one of the casualties? "There's no way for me to minimize the impact, because it's there," says Thomas D. Taylor, the executive vice-president and chief financial officer. Sales in 1986 are down 65% from last year. In response, the company has started cleaning out its sales force."It's real easy for salespeople to get lazy and begin to rely on tax credits to do their jobs for them," says Wilder. "Then the credits go, and they don't know how to handle it.We've had to let some of the old sales staff go and bring in new people who never heard of the words 'tax credits." Solar Age is diversifying, too, by making a prefabricated greenhouse-cumsunroom that attaches to a house.
Like so many companies on this year's INC. 100 list, Solar Age was conceived out of the major social and economic forces roiling the nation. Now its opportunity may be disappearing as convincingly as it once appeared. That is one of the major risks of being an entrepreneur, listening as you must to the changing music of opportunity without the capital base and diversification that cushions large companies. In good times or bad, the sound never ceases.
