Nashville, Tenn., always has been a healthcare capital, thanks to entrepreneurial models such as Thomas Frist Jr., whose Hospital Corporation of America since has blended into Columbia/HCA Healthcare Corp.
Now, the city that spawned healthcare offshoots such as PhyCor and Surgical Care Affiliates is incubating another generation of service companies.
Most have been started by former Healthtrust executives, whose fates were upended when Columbia merged with the Nashville-based hospital company last year.
"Everyone's gone back to work," said Richard Francis Jr., who shared office space with three other top Healthtrust executives shortly after they left the company when it merged with Columbia. His former office mates-W. Hudson Connery Jr., Yonnie Chesley and Michael Koban Jr.-each have gone on to start their own healthcare firms (See chart).
"There was nothing unusual in terms of the transition," Francis said about going from senior vice president of development at Healthtrust to starting UniPhy, a physician practice management company. At Healthtrust, Francis was involved in joint ventures of more than 20 of the company's hospitals. Joining him at UniPhy is Clifford G. Adlerz, who developed Healthtrust's largest management service organization for physicians.
UniPhy's investors like that kind of experienced management team. Providing $20 million in start-up capital are OrNda HealthCorp, a Nashville-based hospital chain; Alex. Brown & Sons, a Baltimore-based investment bank; and Pacific Venture Group, a Los Angeles venture capital firm.
Like Francis, other former Healthtrust executives are finding a wealth of opportunity has opened for them. A bull market for healthcare companies has produced eager venture capitalists searching for experienced executives to back. That financial drive is augmented by location in a city that's flush with attorneys, marketers, accountants and other support personnel who know the healthcare industry.
"If we weren't already in Nashville, we'd have to move here to start this company," said Dana McLendon Jr., senior vice president of New American Healthcare Corp. With $50 million in venture capital from New York-based venture capital firm Welsh, Carson, Anderson & Stowe, New American intends to buy rural hospitals and develop integrated delivery systems.
McLendon and the company's president, Robert Martin, are leveraging their Healthtrust experience in managing rural hospitals.
Another entrepreneur with roots at Healthtrust is Chesley, who started Gordian Health Solutions.
While vice president of human resources at Healthtrust, Chesley started an innovative program to control the company's own healthcare costs. Healthtrust found that 20% of its covered population of employees accounted for 80% of its healthcare expenses.
To give employees an incentive to change unhealthy lifestyles, Healthtrust began charging employees a $35 monthly medical premium, but waived the premium for those who participated in a health risk program.
Of the company's 25,000 covered employees, about 3,700 chose not to participate, meaning they had to pay the $35 premium. Of those that participated, 20% were judged to be high risk because of weight or tobacco use. To have the $35 premium waived, those high-risk workers had to agree to go through weight-management or smoking-cessation programs.
Healthtrust estimated that the program of risk assessments, weight management and smoking cessation would cost $1.5 million. It turned out that the employees who opted not to change their lifestyles funded the complete cost of the program by paying the extra $35 a month.
What's more, thanks to these programs, Healthtrust saved $1.1 million on lifestyle-related medical claims, Chesley said.
When Columbia bought Healthtrust, the program was dropped, but Chesley saw the opportunity to start a company based on the idea. The company will set up similar health programs for employers and coordinate them with local providers.
As an added incentive, former Healthtrust Chairman R. Clayton McWhorter said he'd invest in Gordian. "Clayton encouraged me to put this company together," Chesley noted. In addition, Keith Rye, Healthtrust's former director of benefits, joined her in founding Gordian. McWhorter, currently chairman of Columbia, is stepping down from that position May 9. He will be an adviser to Gordian and is looking at other Nashville start-ups in which he may invest through a new company, Clayton Associates.
Perhaps the furthest along of the Healthtrust alumni start-ups is Arcon Healthcare. Interestingly, the company is one of three Nashville start-ups focusing on rural healthcare. Arcon announced its first deal last December to build an outpatient center in Rockwood, Tenn.
Since then, it's signed deals in Destin, Fla.; Mesquite, Nev.; and Wartburg and Soddy-Daisy, Tenn.
If those sound like towns that aren't on most hospital chains' radar screens, it's because they aren't.
Arcon focuses on small towns that either have no hospital or have a hospital that's dying. Arcon proposes to become a McDonald's of healthcare, building look-alike centers that cost between $3.5 million and $4 million. All the centers would provide emergency care, primary-care physician services, outpatient surgery and some ancillary services, such as X-ray and laboratory. In most cases, the facilities will be licensed as ambulatory surgery centers.
"We're not going into markets where there are viable hospitals," said Joseph Sowell III, the company's vice president of development. Sowell had been a partner at Waller, Lansden, Dortch & Davis, a Nashville law firm. There, he represented Columbia, Healthtrust, PhyCor and Surgical Care Affiliates in joint ventures and practice acquisitions, experience that blends well with Arcon's strategy.
Connery, Arcon's president and chief executive officer, is a former chief operating officer of Healthtrust.
The movement of executives from company to company in Nashville shows the sea of available talent.
For example, Principal Hospital Co., which is also targeting rural areas, last month hired Richard Gore, former controller at Quorum Health Group in Nashville. Quorum is the nation's largest contract manager of hospitals, most of which are located in rural areas. Gore will be chief financial officer of Principal.
Within the last month, New American, which also is targeting rural America, hired Timothy Hill, former director of management reporting for Healthtrust, as vice president-controller. In addition, the company hired Neil McLean, who had been a group vice president for Quorum, as vice president for acquisitions and development.
Neither Principal nor New American has signed its first deal, although both have the capital to back one. New American has the $50 million from Welsh, Carson, and Principal received an undisclosed capital infusion from Golder, Thoma, Cressey, Rauner, a Chicago-based venture capital firm.
Welsh, Carson also put up $25 million in funding PrincipalCare (not to be confused with Principal Hospital Co.). The women and children's health company was started by four former executives of MedAlliance, a Nashville-based imaging company that was sold last year. The company will focus on obstetricians, gynecologists and pediatricians.
PrincipalCare's president and CEO, Patrick Ryan, won't talk about specific deals, but says the company has "multiple practices under agreement."