When HealthSouth Corp. top executive Richard Scrushy looks at a map of the U.S., he sees 300 targets.
Each is a metropolitan market of 100,000 people and a potential location for one of his "integrated service plazas," which would house all HealthSouth's outpatient product lines under one roof.
Scrushy has high hopes for the integrated service plaza model. To hear him tell it, his pet project will help HealthSouth take the throne from Columbia/HCA Healthcare Corp. as the nation's largest healthcare company.
If HealthSouth were operating such plazas at full-speed in 300 markets, its annual revenues would total $25 billion, boasts Scrushy, chairman and chief executive officer at the Birmingham, Ala.-based company.
With its current $3 billion in annual revenues -- compared with Columbia's $18.8 billion -- the nation's largest rehabilitation provider appears to be more than a few metropolitan markets away from domination.
In addition, analysts say HealthSouth could face pitfalls because it will mingle many services covered by different regulations and also perhaps bring in outside contractors.
"If you have these buildings with 15 or 20 different services and joint ventures, you have a lot of different regulatory hurdles to deal with," says Scott Becker, an attorney with Chicago-based Ross & Hardies. "It is a very different thing to work through in a regulatory perspective."
Scrushy says he doesn't see regulatory issues as a problem.
Right now, the integrated service plazas are debuting in HealthSouth's most mature markets across the country.
Scrushy wouldn't provide financial details of the company's planned investment.
The plazas are an extension of the company's integrated service model, which Scrushy began implementing throughout the HealthSouth network three years ago. The model combines outpatient rehabilitation and surgery, occupational medicine and therapy programs, and diagnostic imaging.
Scrushy says HealthSouth will consolidate its outpatient operations scattered in a market into a central location; HealthSouth will own the operations and lease the plaza. He also says certain of its existing facilities will continue to operate, although he declined to elaborate.
HealthSouth sports 1,700 locations for its services in all 50 states, but it's offering all its product lines in one-third, or 96, of the 300 metropolitan areas where it aims to do so, Scrushy says.
Nine plazas are under development in Boise, Idaho; Houston; La Jolla, Calif.; Los Angeles; Orlando, Fla.; Rockville, Md.; San Antonio; San Diego; and St. Louis.
The outpatient service consolidation will result in few, if any, employees losing their jobs, Scrushy says. "Changes in personnel would include the reception area or something like that," he says.
HealthSouth executives contend the plazas aren't a sign the company's acquisition opportunities are drying up. They say there are plenty of acquisitions in the pipeline and they aren't focusing on building instead of buying.
That's what Columbia did when investigations of its acquisitions by state attorneys general slowed its expansion.
Scrushy says HealthSouth's plaza strategy is a simple evolution of market maturity.
In fact, the plazas' proliferation has been delayed by existing leases that HealthSouth inherited from acquisitions during the past 15 years, he says. "As our 10-year leases -- which most of them are -- come up, we will look at building an integrated service plaza in that market," he says.
By simply having all HealthSouth's outpatient services in a plaza, Scrushy could catch Wall Street's eye with his picture of potential revenue growth. The plazas are designed to promote referrals within a single location, giving physicians and insurers less reason to send patients to different facilities.
"This brings it all together," Scrushy says. "We're packaging and bundling services. It's good for the patient as well as the payer."
Salomon Smith Barney of New York studied referral patterns in HealthSouth's integrated service model. It found that HealthSouth's patient volumes are 20% to 25% higher in markets with integrated services than in others. As a result, HealthSouth's profit margins are typically 3% to 4% higher in those markets.
"The cross referrals are unbelievable," Scrushy says. "In a typical facility that would generate $30 million, you can kick it up another $5 million (because of cross referrals)."
A typical plaza will be two floors and 50,000 to 70,000 square feet. HealthSouth's operations will fill most of the space; the balance would be leased by physicians or other healthcare-related businesses.
The Pecan Valley Integrated Services Plaza in San Antonio, a two-story, 60,000-square-foot building, is scheduled to open earlier this year.
"We're opening them as we speak," Scrushy says. He wouldn't disclose when other facilities would open or costs of such ventures.
The size of each facility could vary. Thus, it remains unclear how many employees would be needed to staff them.
HealthSouth doesn't want to be in the business of owning buildings and real estate, stresses Joseph Vegso, its vice president of outpatient operations. "A developer develops the properties and we lease them," Vegso says.
"We are not owners of the buildings," he says. "When we have the opportunity to talk to physicians, we talk fair market value."