Less than a year after his last company went bankrupt, W. Hudson Connery Jr., the former chief operating officer of Healthtrust-The Hospital Co., is back in the game, this time with plans to start a rural hospital company based in Nashville.
The company, called Essent Healthcare (in a play on the word "essential") will acquire small community hospitals through partnerships with nearby tertiary-care centers. Chicago equity investment firm Thoma Cressey Equity Partners has committed $50 million to the company. "We're looking at this as a 10-year horizon," Connery said. "There's no rush here. That's the beauty of the situation we're in. Being prudent, being deliberate, taking time with an experienced capital partner is, I think, a very advantageous situation to be in."
The prudence and deliberation come from hindsight.
Connery said he began discussing the idea for a hospital company with Essent's equity partner last October, the same month that Arcon Healthcare, his rural health services company, went bankrupt. Among Arcon's investors were Connery; New York-based investment firm Warburg Pincus Funds; and two venture capital firms, Baltimore-based New Enterprise Associates and Franklin, Tenn.-based Coleman Swenson Hoffman Booth.
When it closed down its operations, the privately held Arcon ran nine rural outpatient clinics, sometimes referred to as hospitals without walls, in five states (Oct. 26, p. 30). The company, founded in 1995, owed $50 million when it liquidated its facilities to the two real estate investment trusts from which it leased its clinics.
"I learned some major lessons," Connery said. "The major lesson was how difficult it was to start from scratch."
But now he's starting another new venture. However, unlike Arcon, which went into communities that sometimes had only one doctor, Essent will try to acquire existing not-for-profit community hospitals, Connery said. He doesn't expect to make an acquisition until early next year, and the company is unlikely to grow faster than by three or four hospitals per year, he said.
"Literally, in any market Arcon went to, in retrospect, we needed to have planned for almost a two-year time frame to get over all these bumps in the road we were facing," he said. "I don't face those issues acquiring an existing operation."
Connery said he has learned not only from his Arcon days but also from his experiences as COO at Healthtrust and as an executive in development at Hospital Corporation of America between 1983 and 1987. He also spent time as the chief executive officer at a hospital in Cherry Hill, N.J., and as an associate administrator at a Richmond, Va., hospital.
Connery conservatively estimated Essent's revenue to be about $200 million annually five years from now.
Connery, who has worked with community hospitals since the late 1970s, said there is no one-size-fits-all structure for joint ownership agreements he would like to form with tertiary-care centers, but referral services will be important, he said.
"Joint ventures with nonprofits is not a new idea," he said. "In return for the complexity, there are certain critical advantages."
One of those is enhancing the credibility of a for-profit company's coming into a small community that may be wary of for-profit healthcare, he said.
Essent has no intention of managing hospitals, as Brentwood, Tenn.-based Province Healthcare, another rural hospital company, does through a subsidiary. Nor does Essent want to get involved in operating the tertiary centers or buying hospitals from other for-profit companies.
And Connery does not expect to see quick turnaround results at hospitals his company buys.
"I think we're entering an era where operations will be what differentiates folks who can survive and hopefully prosper," he said. "Where there's a will, there's a way."