After the success of the hospital-within-a-hospital model for long-term acute care, a new healthcare company said last week it had raised $7 million from three independent venture capital funds to use the same model for inpatient rehabilitation.
The St. Louis-based company, Centerre Healthcare Corp., was incorporated in 1999 as a rural hospital startup but it began business officially this year after refocusing its niche on rehabilitation. It aims to open its first hospital-within-a-hospital by mid-2003. Centerre is in lease negotiations with one hospital and in various stages of development with "a couple dozen" other hospitals, company co-founder and Chief Executive Officer John Lewis told Modern Healthcare.
"We'll be one of the first to the new hospital-within-a-hospital space for rehabilitation," he said.
Lewis said the only other company to look into the concept is Birmingham, Ala.-based HealthSouth Corp., the nation's largest rehabilitation hospital chain. But unlike HealthSouth, "this will be our only business," Lewis said.
Lewis previously launched Intensiva Healthcare Corp. in 1994 under the hospital-within-a-hospital model. The company, which operated 22 specialty hospitals for critically ill patients, went public in 1996 and was sold to Select Medical Corp., Mechanicsburg, Pa., in 1998 for more than $110 million. Lewis' partner in Centerre, co-founder and Chief Financial Officer John Keefe, previously was CFO at NextCare, a long-term acute-care company in Austin, Texas, that merged with long-term acute-care provider LifeCare, Plano, Texas, in May 2001, Lewis said.
Centerre has no plans to open freestanding rehabilitation hospitals or pursue outpatient care and will focus most of its operations in the central U.S., particularly in the Midwest, Lewis said.
"We think (inpatient care) is the most effective outsourcing model for our hospitals," he said. "These patients are 4% of the hospitals' population but 100% of ours, and so our specialization really allows us to optimize or maximize the value of having rehabilitation in the hospital."
Daniel Rosenberg, a principal at Northbrook, Ill.-based Sterling Venture Partners, which provided roughly $2.8 million in financing, said Centerre will look for a second round of financing in the coming year.
"The management team-these are very incredible guys, strong operating guys, visionaries, and they've proven before they can do it," he said. "We're backing successful entrepreneurs who have made money."
Lewis said the Centers for Medicare and Medicaid Services' approval of a new prospective payment system that went into effect in January was a catalyst to create a new company in an atmosphere of fair reimbursement. Under the new PPS, rehabilitation facilities will be reimbursed based on the characteristics of each patient they admit, and Medicare will pay hospitals more to care for patients with greater needs, as determined by an assessment of their diagnoses.
"The change in reimbursement created what we see as a large and exciting business opportunity," he said.
Lewis said Centerre could go public within a few years, and that other providers also may jump into the business model.
"We think it's an attractive opportunity and anticipate others will evaluate it," he said.