Investing in Willie

Integrated Health Services of Maryland puts its stock in Brown

Integrated Health Services Inc., the rapidly expanding Maryland health-care giant, is accustomed to seeing excellent returns on its investments. Since its inception in 1986, IHS has gobbled up 24 separate companies and forged business relationships with four more. Between 1993 and 1994, the last two years for which records were available, the company's assets shot from $766 million to $1.2 billion. IHS is expected to round out 1996 at $1.4 billion. With earnings and stock prices growing as rapidly, analysts say the sky's the limit for the mighty Marylander.

At the tail end of the mayor's race, the acquisitive company made its foray into San Francisco and made a modest investment in an exciting local commodity: Willie Brown.

IHS bestowed upon the Brown campaign $14,250 in 19 separate donations in October and November, using various business entities to skirt San Francisco's $750-per-donor limit. The sum makes IHS one of the mayor's single largest contributors.

The five-figure amount given to Brown pales in comparison to multimillion-dollar mergers and acquisitions IHS has been involved in of late. But it's hard to imagine that the out-of-state company is simply flush with Williemania.

Asked the whys and wherefores of its political gift, however, the company stubbornly refuses to answer.

IHS headquarters in Owings Mills, Md., referred inquiries from the office of the chief executive officer to the chief financial officer to corporate counsel and finally to a law firm in Miami that stated, "It is IHS policy not to comment on its political affiliations or its contributions."

And don't look to the new mayor for answers. His fledgling administration has promised answers over the last month, but so far two separate spokespeople have failed to call back with any.

Which leaves educated guessing:
The company's CEO, Robert Elkins, is a staunch Democrat who regularly gives money to his party and its candidates. He is deeply involved in the Medicare and Medicaid debate in Washington. IHS's current contributions aren't the first time the company has opened its pocketbook for Brown. In 1992, the company gave Brown's Assembly campaign a loving $10,000.

But a more plausible explanation for IHS's interest in the mayor involves a sister company of IHS, the Crestwood Hospitals Inc. nursing hospital chain, and a lucrative health-care contract with the city of San Francisco that Crestwood is at risk of losing.

Before examining contracts, let's examine the IHS and Crestwood relationship: Crestwood and IHS share a California political action committee -- Integrated Health Services Inc./Crestwood Hospitals Inc. -- and in 1994 the two companies struck an interlocking business agreement. Under the agreement, IHS manages 23 of Crestwood's California nursing homes and reaps its payments based on Crestwood's gross receipts: The more money Crestwood makes, the more money IHS makes.

Considering the two corporations' financial alliance, it's not far-fetched to expect IHS to intervene on Crestwood's behalf. But IHS has even more reasons for protecting Crestwood.

Currently, San Francisco's Health Department dispatches severely mentally ill patients to four of the Crestwood facilities in California for rehabilitation therapy. The city pays Crestwood -- and by extension IHS -- $9 million a year for its services. But in March of this year, the city is going to start calling many, if not all, of those patients back home. The Health Department plans to house them at a newly constructed psychiatric-care facility at San Francisco General Hospital. Which means bye-bye to much or all of Crestwood's $9 million, according to Health Commission President Arthur Jackson.

Seeing the writing on the wall, Crestwood put in a bid on the clinical services contract at the new 180-bed facility at General Hospital. But the contract, worth $10 million, went to a rival company, Telecare.

Before the contract could be awarded to Telecare, however, the health-care workers' union, Service Employees International Union Local 250, stepped in and put the process on hold.

Local 250 wants unionized city employees to run the place; damn the privatization, they say. General Hospital administrators and the union are currently hashing out the possibility of union workers running the place. And the negotiations have presented Crestwood with the extra time needed to approach the new mayor and ask him to intervene on its behalf.

Since the contract has not been awarded yet, the city attorney says Brown can ask the health commission, which he will appoint soon, to reopen the bidding and give Crestwood a second bite at the $10 million apple.

Jackson and General Hospital administrators say they are unaware of any such move on Crestwood's or IHS's part.

Such a move would be risky for the new mayor. Brown could run afoul with the health-care workers' union, which worked as hard as anyone to get him elected. Union members donated thousands of dollars and walked precincts.

But Brown could find other ways to take care of the union. And if he decides to reopen the contract bid for Crestwood, Telecare may find itself at a serious disadvantage.

Like IHS, Telecare is a frequent Democratic Party donor, giving money to such party lights as Kathleen Brown, John Burton, Burt Margolin, and Barbara Lee. But a review of the company's donations going back to 1991 shows that one big Democrat was never salted with Telecare money: Willie Brown.

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