Going Cross Country for profit opportunities!

by Siu-Yee Ng

There’s one question that sticks in my mind from childhood, “What do you want to be when you grow up?” I thought long and hard. I concluded it was a silly question. I didn’t know what I wanted to be at age ten!

But I had to think of something, and quick. So I raised my head high and said, “I want to be a nurse and help people.”

As you can see, I’m not a nurse. My point is that, if I had only stuck to my original aspirations, then I could have helped with the current nursing shortage.

When a friend came to me with a proposition to invest in a nurse staffing company, I jumped at the opportunity. You see, with the aging of the baby boomers, along with technological advances in healthcare delivery, the demand for healthcare services is increasing.

Why a nurse staffing company? It’s simple. The U.S. Healthcare Financing Administration projects total healthcare expenditures to grow by 8.6% in 2001, and by 7.1% annually from 2001 through 2010. According to these projections, healthcare expenditures will account for approximately US$2.6 trillion by 2010, or 15.9% of U.S. gross domestic product!

Migrating South

It makes sense for healthcare facilities to seek temporary staffing. Think about it. In the winter, there’s a population upsurge in the Sunbelt states. And in the summer, people return to their homes in the northeast.

The use of temporary personnel enables providers to vary their staffing levels to match these changes in demand and avoid the more costly alternative of hiring permanent medical staff. The healthcare staffing industry also includes the temporary staffing of doctors and dentists, allied health personnel and professionals, and advanced practice professionals, but not home healthcare services.

Healthcare staffing is also expanding, providing new specialties such as medical billing and receptionists.

The Staffing Industry Report, an independent staffing industry publication, estimates that the healthcare segment of the temporary staffing market generated US$7.2 billion in revenue in 2000, and that this segment will grow 18% to US$8.5 billion in 2001.

Burning out

There’s a growing shortage of registered nurses throughout the country. A recent study published in the Journal of the American Medical Association projects that by 2020, the nationwide registered nurse workforce will be nearly 20% below anticipated requirements.

I’m not surprised at this nursing shortage. One of my friends complains that she is already burned out. And she’s only been working for four years! It’s hard work, and she complains that she gets no respect.

You see, the nurse pool is getting older and retiring. The study in the Journal projects that within the next ten years, the average age of registered nurses will increase 3.5 years to over 45.

At the same time, enrollment in nursing education programs is decreasing. According to the American Association of Colleges of Nursing, nursing school enrollments have declined at an average rate of 5% for each of the past six years. Many registered nurses are choosing to pursue careers outside of acute care hospitals or in professions other than nursing.

So you can see why healthcare staffing services are on a rise. And why the largest provider of healthcare staffing services in the United States is gearing up for an initial public offering.

Cross Country, Inc. is well positioned to benefit from the boom in healthcare services. It has operated in the travel nurse staffing industry since the 1970s and has the leading brand name. Its Cross Country TravCorps brand is well
recognized among leading healthcare providers and professionals.

Searching far and wide

Cross Country provides staffing solutions to an active client base of over 2,500 hospitals, pharmaceutical companies and other healthcare providers across all 50 states. It’s a plus to see that it does not rely on any one geographic region or client for a significant portion of its revenue.

Cross Country also fills assignments in non-acute care settings, including nursing homes, skilled nursing facilities, and sports medicine clinics, and, to a lesser degree, in non-clinical settings, such as schools.

It staffs public and private, for-profit and not-for-profit facilities. In addition to its core nurse staffing business, it provides operating room technicians, therapists, and other allied health and advanced practice professionals in a wide range of specialties.

According to a report in U.S. News and World Report, in 2000, Cross Country worked with over 75% of the nation’s top hospitals.

Worker bees

A major problem for any staffing company is finding good people and keeping them. But Cross Country recruits healthcare professionals from all 50 states and Canada, thereby increasing its prospects. In 2000, Cross Country received approximately 28,000 requests for applications from potential field employees, and approximately 12,500 completed applications were added to its database.

Nevertheless, Cross Country’s clients demand more healthcare services than it can supply. There are just not enough nurses to go around!

So, to beef up its nursing staff, Cross Country recently initiated Assignment America, a recruitment program for foreign-trained nurses.

Through Assignment America, Cross Country plans to recruit registered nurses from foreign English-speaking countries, assist them in obtaining U.S. nursing licenses, sponsor them for U.S. permanent residence visas, and then place them in domestic acute care hospitals.

Dial N for Nurse

The shortage of nurses drives demand for Cross Country’s services, because hospitals turn to temporary nurses to make up for shortfalls in their permanent staff.

Employee referrals generate a majority of the company’s new candidates. Historically, approximately 70% of its nurses have accepted new assignments with the company within 35 days of completing previous assignments.

Approximately 80% of its revenue is derived from travel nurse staffing. Cross Country also provides complementary services, including staffing of clinical trials and allied health professionals, search and recruitment, consulting, and education and training.

The most common temporary nurse staffing alternatives available to hospital administrators are travel nurses and per diem nurses.

Travel nurse staffing involves placement of registered nurses on a contracted, fixed-term basis. Travel nurses provide a long-term solution to a nurse shortage, present hospitals and other healthcare facilities with a pool of potential full-time job candidates, and enable them to provide their patients with continuity of care.

Assignments may run several weeks to one year, but are typically 13 weeks long. The healthcare professional temporarily relocates to the geographic area of the assignment.

The staffing company is generally responsible for providing travel nurses with customary employment benefits and for coordinating travel and housing arrangements.

But it’s the per diem staffing that comprises the majority of all temporary healthcare staffing. This involves placement of local healthcare professionals for very short-term assignments, often for daily shift work. Per diem staffing frequently involves little advance notice of assignments by the client.

Trust me. When they say “short notice,” they mean it. I had the brief pleasure of helping with the staffing company I helped to build. The clients call at all hours of the day. And when they need a nurse for 7:00 p.m., they call at 5:00 p.m. to see if we can find someone to fill the shift. Yeah, I can see the nurses waiting at the phones to see if they get called in.

But when I think about the profit margins, I forget about waking up at five o’clock in the morning and getting calls at nine o’clock at night. It’s well worth it. Just look at Cross Country’s numbers.

Buying out the little guys

In the past couple of years, Cross Country has been in expansion mode. In May 2001, the company acquired Gill/Balsano, a healthcare management consulting firm, for US$1.8 million in cash and potential earnout payments of US$2.0 million. In March 2001, it acquired ClinForce for US$31.0 million in cash. ClinForce supplies supplemental staffing services for clinical trials. ClinForce’s revenue was US$28.9 million for the year ended December 31, 2000.

In December 2000, Cross Country completed the acquisition of Heritage, a provider of continuing education programs to the healthcare community, for a purchase price of approximately US$6.5 million in cash and potential earnout payments of approximately US$6.5 million.

In July 2000, it acquired E-Staff, an application service provider that has developed an Internet subscription-based communication, scheduling, credentialing and training service business for healthcare providers, for US$1.5 million in cash and potential earnout payments of US$3.2 million.

In December 1999, it acquired all outstanding shares of TravCorps’ common stock in exchange for shares of Cross Country’s common stock, then valued at approximately US$32.1 million, and assumed TravCorps’ debt of US$45.0 million. TravCorps had revenues of US$113.0 million for the period from December 27, 1998, to December 15, 1999.

You can just imagine how all this adds to Cross Country’s bottom line.

Money talks

Travel nurse staffing revenue comes primarily from acute care hospitals. Clinical trials staffing revenue comes primarily from pharmaceutical and biotechnology companies, as well as medical device manufacturers.

Revenue from allied health staffing services comes from numerous sources, including providers of radiation, rehabilitation, and respiratory services at venues like nursing homes, sports medicine clinics, and schools.

Revenue from Cross Country’s search and recruitment, consulting, and education and training services comes from numerous sources, including hospitals, physician group practices, insurance companies, and individual healthcare professionals. Its fees are paid directly by clients, rather than by government or other third-party payers.

Revenue is recognized when services are rendered. Accordingly, accounts receivable includes an accrual for employees’ time worked but not yet invoiced. Cross Country’s field employees work predominantly under contracts where the individual is its employee. Cross Country also offers mobile contracts, under which the individual is an employee of the client facility for the purposes of payroll and Cross Country is paid an hourly or weekly administrative fee.

Revenues have been increasing yearly and quarterly. Revenue increased by 16.0% to US$103.9 million for the three months ended March 31, 2001, as compared to US$89.6 million for the three months ended March 31, 2000. Revenue from Heritage and ClinForce totaled US$4.9 million for the three months ended March 31, 2001.

Excluding the effects of these acquisitions, revenue increased US$9.6 million, or 10.7%, as compared with the three months ended March 31, 2000. This increase is primarily due to an increase in the average hourly bill rate.

Of the US$103.9 million in revenue from the three months ended March 31, 2001, 83.2% was generated by travel nursing operations, 9.5% from other staffing operations, and 7.3% from other services. Of the US$89.6 million in revenue from the three months ended March 31, 2000, 87.7% was generated by travel nursing operations, 8.4% from other staffing operations, and 3.9% from other services.

Revenue for the year ended December 31, 2000, totaled US$367.7 million, as compared to US$193.7 million during the same period in 1999.

For the year ended December 31, 2000, 87.5% of revenue was generated by travel nursing operations, 7.8% from other staffing operations, and 4.7% from other services.

Cross Country, Inc. plans to raise US$143.8 million dollars under the proposed ticker symbol CCRN. The underwriters for this offering are Merrill Lynch & Co., Salomon Smith Barney, Banc of America, The Robinson-Humphrey Co., and CIBC World Markets.