The former second-in-command at the nation's largest for-profit hospital chain is staging a return to the acute-care hospital business, Modern Healthcare has learned.
David Vandewater, who resigned from the No. 2 spot at Columbia/HCA Healthcare Corp. in 1997 as a massive federal Medicare fraud investigation was unfolding, now wants to transform a behavioral health company by acquiring acute-care hospitals. Vandewater, 50, chairman, president and chief executive officer of privately held Behavioral Healthcare Corp. in Nashville, is preparing to move the 23-hospital psychiatric hospital chain into the general acute-care hospital business.
"Our goal is to grow both sides, but clearly we're going to be eager to immerse ourselves in the medical surgical side for a while and get a much stronger position," Vandewater confirmed last week in an interview.
Vandewater already has started hiring additions to the company's management team and plans to change the company's name to reflect the new line of business.
"We're not just going to be providing behavioral healthcare services," he said. "We're going to branch out and provide medical surgical services, and we're looking for acquisitions in that area."
He said the company wants to buy hospitals in urban markets and is not limiting itself to any particular geographic region. So far, the company has not completed any hospital purchases but expects to jump into the fray within weeks, Vandewater said.
New York investment firm Welsh, Carson, Anderson & Stowe, which holds a majority equity interest in the company and controls its board of directors, has pledged $145 million in startup capital to begin acquisitions, Vandewater said. Russell Carson, general partner at the firm, declined a request for an interview, saying he preferred to wait several weeks before commenting on the changes at BHC.
Vandewater was president and chief operating officer at Nashville-based Columbia-since renamed HCA-The Healthcare Co.-when the federal government launched its lengthy criminal and civil Medicare fraud investigation into the company. He and Columbia's CEO, Richard Scott, both resigned after the scandal broke, at one point investing together in a healthcare information company.
After keeping a low profile for several years, Vandewater was named chairman of BHC in February when Edward Stack resigned as president and CEO. About a month ago, he was named president and CEO. Previously he had served for a short time as president and CEO of Dallas-based United Surgical Partners International, a surgical hospital company that went public in June.
Welsh, Carson tapped Vandewater to lead BHC specifically because of his background in the acute-care business. The company still is putting together a new management team to lead what will be a separate acute-care division.
Among the new hires is Tom Pemberton, the former COO at the now defunct privately held NetCare Health Systems, which in February sold its six hospitals to SunLink Healthcare Corp. in Atlanta. Pemberton, who was brought in as vice president of medical surgical operations, confirmed that he began working at BHC last week.
Many acute-care hospital chains, such as HCA and Tenet Healthcare Corp., own a handful of behavioral hospitals but have not focused their energies on both lines of business.
One company that could serve as a model for the revamped BHC is Universal Health Services, King of Prussia, Pa.. UHS, which operates 24 acute-care and 37 behavioral health hospitals, is a leader in both businesses.
Although UHS is the nation's largest behavioral hospital chain, only about 19% of its operating revenue is generated by its acute-care hospitals, said Kirk Gorman, senior vice president and chief financial officer. The company has been able to weather reimbursement changes better than some providers that only have acute-care facilities because of its broader focus, Gorman said.
"I think it is helpful to be a little bit diversified," he said. "Being a little more diversified reduced our exposure to environmental change."