Encore Capital to Cut Jobs, Exit Healthcare Sector

Encore Capital Group, Inc. (NASDAQ: ECPG) announced late yesterday it would cut 115 jobs, sell its healthcare receivables portfolio, and leave the healthcare sector in an effort to reduce costs. The San Diego-based accounts receivables management and debt purchasing firm said the staff cuts would mean annual savings of more than $7 million going forward but cost about $1.5 million in the third quarter.

Encore said it would cost about $1.7 million to exit healthcare, primarily due to a $1.3 million charge to dispose of its healthcare receivables portfolios. Encore reported it had stopped all purchasing and collecting related to healthcare and that the unit hadn’t met profitability targets.

Healthcare is considered the fastest growing sector in the ARM industry with healthcare debt placements the most commonly received in 2006, according to a survey by ACA International, a trade organization for collection agencies. Healthcare numbers are enormous in the U.S., with health-related spending totaling $1.9 trillion in 2005. Meanwhile healthcare providers set aside $129 billion that year to pay down bad debt, according to Kaulkin Ginsberg’s Healthcare ARM Report, 2006.  

But healthcare has proven difficult for some ARM firms.

“It’s a tough segment to collect in,” said Larry Berlin, a vice president with First Analysis Securities who covers Encore and several other publicly traded ARM firms.

First, hospitals may not gather enough information on their patients to assist collectors and, second, bills are often confusing, said Berlin. “Bills are a mess. It’s hard to understand what you owe. And there’s no incentive to pay,” said Berlin. 

In addition, bills can quickly become huge, overwhelming the consumer. “There are lots of [healthcare] receivables and they need management. But they haven’t proved profitable,” said Berlin.

Encore’s job cuts will include 70 at call center in Phoenix; 30 at a bankruptcy service center in Arlington, Texas; and 15 at corporate headquarters. Encore plans to shift the collection work to call centers in San Diego, St. Cloud, Minn., and India, and to third party collection agencies. Encore said the bankruptcy servicing can be handled by fewer staff. 

Encore didn’t return calls by insideARM.com’s deadline.

Encore also announced several changes in the make up of its board, with two directors retiring and two independent directors joining the board. The changes will be effective Oct. 30 at the annual shareholders meeting.

Among those joining the board is George Lund, chairman and CEO of Torch Hill Investment Partners, a private equity firm, and former chairman and CEO of credit card issuer Bankfirst.