Given the right environment, healthcare executives will jump at the chance to use the experience gained at one company to launch their own ventures.Two years ago, Wall Street marveled as entrepreneur Abe Gosman sold his long-term-care company Mediplex Group to Sun Healthcare Group, having taken it public twice. Meanwhile, he was fostering a fertile training ground in the post-acute world (Oct. 2, 1995, p. 58).In New England, several former Mediplex executives have become entrepreneurs in their own right, launching four companies since 1992 that draw greatly on the former company's talent pool.Dubbed "The Sons of Mediplex" in a recent Boston Globe profile, each company targets a niche of the post-acute market that Mediplex served.The Mediplex alumni describe their upbringing in almost exactly the same terms. They say the company rewarded those who were willing to take on added respon sibilities and deliver results."Access to Capital 101" was perhaps the most important course taught by Gosman. Executives at each of the "sons" have drawn on capital-raising skills to grow the companies, and some have voiced te ntative plans to take their firms public during the next few years.Mediplex's former president, Jonathan Sherwin, teamed up with Francis Shea in May 1994 to form nursing home provider Frontier Group, based in Boston.Shea left Medip lex in 1993 with plans to start his own company. His thinking was that smaller "mom and pop" nursing facilities could benefit from the structure of a larger company with access to capital. Frontier also purchases facilities from large nursing home chains."We soon will have raised almost $100 million in about 15 months," Sherwin said. "We wanted the capital available to us in advance of the opportunities" so cash will be on hand when specific needs arise, he said.The company met its 1995 goal of acquiring 900 beds in Massachusetts and Connecticut, and it hopes to amass 2,000 beds and $100 million in annual revenues by late 1998, Shea said. At that point the company may need acces s to the public marketplace to reach its ultimate goals."We want to be more managed-care compatible," Sherwin said, and that will mean developing a strong, two-state, post-acute network.Frontier has an informal relationship with another of the new companies, Liberty Healthcare Management Group, also based in Boston.Liberty has helped develop treatments for Frontier patients with behavioral disorders, and the two companies also share a board member, Fred Ja cobs, another former Mediplex president.William Hartigan founded Liberty in October 1995 through the purchase of Mediplex's behavioral health division from Albuquerque, N.M.-based Sun. The purchase consisted of $39.9 million in ass umed debt and a $12.5 million working capital loan from Sun, Hartigan said.Hartigan expects to grow Liberty's business in ways that don't require a lot of new financing. For example, "we have a management arm that operates psychia tric hospitals for third parties," he said. In addition, the company has been approached by lenders with troubled properties that they'd like Liberty to manage.Hartigan, who was responsible for Mediplex's psychiatric and substance -abuse treatment facilities, had served as Mediplex president two separate times. Three former Mediplex presidents now are associated with Liberty, as are several other top executives.In addition, the majority of the staff in each facility had been with Mediplex before the company was sold to Sun.That's also the case in the facilities of Olympus Healthcare Group, founded by Daniel Kane, who served as Mediplex chief operating officer from 1991 to 1994 and chi ef financial officer before that.Kane said he started Olympus April 15, 1994, the day after he left Mediplex. He and Gosman had disagreed over the direction Mediplex should be going, he said. Kane used $1 million of his own money t o get Olympus up and running.The company, based in Westborough, Mass., now owns and operates 10 nursing homes with about 1,200 beds in Massachusetts and Connecticut and is expanding its program of managing subacute-care units withi n hospitals.The company occasionally has gone head-to-head with Prism Health Group, the eldest "son," in vying for subacute contracts with hospitals, Kane said.Prism was formed after Steven Garfinkle, a former Mediplex COO, left the company to start his own consulting firm and became interim CEO at Oakwood Living Centers, a McLean, Va.-based nursing home company. He raised $2.25 million in start-up financing and bought Oakwood's unprofitable rehabilitation division in 1992. At that time, Prism also began a separate nursing home management subsidiary.He hasn't needed to raise any more capital because his business now runs on a contract basis. For Prism, "real estate is not the key,' ' Garfinkle said."Every time we grow it's because we get a new customer," he said. The company manages subacute and long-term-care programs in more than 100 hospitals and nursing facilities in 17 states. Prism recently created a new division that will form a local network of services, allowing the company to assume risk for managing patients' post-acute care. Through the subsidiary, independently owned providers will have access to managed-care patients wi thout having to be purchased by a large system, Garfinkle said.In addition, Prism is raising capital to acquire a mid-sized home-care company and plans to purchase three or four more, each with annual revenues from $3 million to $5 million, Garfinkle said.He said that once the post-acute network is in place he may take the company public in late 1997. Being a publicly traded company isn't a business strategy, he said, but new capital will be needed to contin ue expansion.Generally, an environment of friendly competition and collaboration prevails among the four companies. "In most cases, we're not competitors," Garfinkle said."You have variations on a theme," Sherwin said. Where one company chooses to concentrate on acquisitions, others seek collaborative arrangements with acute-care hospitals.Which ones will be the most successful? "Everybody's got a different crystal ball," Garfinkle said>
FINANCE;FORMER MEDIPLEX EXECS IN SIBLING RIVALRY OF SORTS
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