It was a cold day last March when Gary Wood and his partner, Lawrence Meagher Jr., stepped off a plane in New York in pursuit of capital for their start-up company, International Hospital Corp.
A south-of-the-border version of America's investor-owned hospital chains, the Dallas-based company planned to build and operate private, for-profit hospitals in Mexico.
Briefcases in hand, the Dallasites trudged into their first appointment with confidence.
But when they arrived, the potential investor was stunned. "Do you still want to go through with this?" he asked.
They were stumped by the question until he told them the news. Luis Donaldo Colosio, the presidential candidate of the Mexican government's ruling party, had just been assassinated. Mr. Colosio had been expected to further the democratic market reforms of President Carlos Salinas de Gortari, who stepped down in November.
The incident was enough to shake the confidence of that investor, who feared more political unrest in a country that's been trying to reform its economic system.
Dark memory.Now, that dark day is just a memory. The money came-$75 million so far-through various private investors. Some were in Dallas, other funds came through a private equity offering handled by New York investment banking firm Salomon Brothers and a Mexican bank.
Six facilities are now under development for the company's Mexican hospital system, called CIMA, which stands for Centro Internacional de Medicina.
The first CIMA hospital, a $27 million, 75-bed facility, will open in March 1995 in Hermosillo. More than 100 physicians and 20 other individuals are investors in the facility. The hospital also will manage a state-owned regional cancer center on the hospital campus.
Hospitals in Puebla and Chihuahua also are under way. Each project has more than 100 physician investors.
The company intends to rely on physician investors and, perhaps, more equity offerings to raise capital for future expansion.
The hospitals will be marketed to private-paying patients. Although Mexico has a type of national healthcare with government-run hospitals, Messrs. Wood and Meagher believe there's a market for a private hospital in which patients pay cash or with private insurance.
Past failure.International Hospital Corp. isn't the first American company to build hospitals in Mexico. Humana built the $50 million Angeles de Pedregal hospital near Mexico City in 1982, which thereafter became widely known as a bad example to follow.
"They did everything wrong," Mr. Meagher said. "It's still a legend down there. The first question people ask us is, are we going to build a hospital like Humana did?"
By all accounts, Humana's hospital was beautiful, but that's where the good news stopped.
For starters, when Humana built the hospital, 300 pesos equaled one American dollar. Within three years, the valuation had dropped to where $1 was worth 2,300 pesos.
Humana had borrowed American dollars, but its patients were paying in pesos that were worth a fraction of what it would cost to repay the debt.
"We could never earn enough pesos to pay back the dollars," said one former Humana official who asked not to be identified.
What's more, Humana's administrators didn't speak the language or know the culture, he said. At least one of the hospital's administrators commuted between the United States and Mexico.
The hospital had problems attracting qualified nurses and physicians, meaning that Mexicans who wanted quality care didn't go there. If they had the money, they continued to fly to Texas, California and Louisiana hospitals for their care.
Humana ended up selling the hospital to local investors for $11 million.
Better prospects.International Hospital Corp. plans to avoid those mistakes. And, it will get help from the Mexican economy, which now has a 7% inflation rate and is expected to do well under the new president, Ernesto Zedillo.
"Humana built a U.S. hospital in Mexico. That was a fundamental error. Healthcare costs are half of what they are in the U.S., and you have to match the facilities' cost to the market," Mr. Wood said.
Mr. Meagher is a key to the whole operation. Between 1980 and 1986, he was director general of the American British Cowdray Hospital, a not-for-profit community facility in Mexico City. Despite the escalating inflation that shredded Humana's bottom line in Mexico City, Mr. Meagher's 200-bed hospital made money.
In 1988, he joined Baylor Health Care System as vice president for international services. American British Cowdray is an affiliate of Baylor. Mr. Meagher continues to hold that position, although most of his time is now spent on the International Hospital Corp. effort.
In addition, Baylor holds a "very small" equity interest in International Hospital. Mr. Meagher declined to be more specific about the size of that interest.