Normally healthcare turnaround firms don't disclose their finances. But last year's acquisition of the Hunter Group by publicly traded Navigant Consulting affords a glimpse at their profit pictures.
Data in a recent Navigant filing with the Securities and Exchange Commission indicate that for the first half of 2002, while still private, St. Petersburg, Fla.-based Hunter had an operating profit of $2.8 million on revenue of $13.8 million, a 20.3% margin. Navigant confirmed calculations by Modern Healthcare.
The Hunter Group was acquired in September 2002 for $25.4 million.
Although a 20% profit margin is rare in hospitals, it's the norm for healthcare consulting, industry leaders say.
"The operating margins are generally very high. But you can end up losing money very quickly, too," says George Whetsell, a principal at healthcare turnaround firm Wellspring Partners in Chicago.
Barriers to entering the field are formidable because of the specialized nature of healthcare turnarounds. A potential new competitor to the big three-Brentwood, Tenn.-based Cambio Health Solutions, Hunter and Wellspring-emerged in 1999, when Jay Alix & Associates, known for makeovers of Fortune 1,000 companies, allied with Ernst & Young, which specialized in healthcare process improvement. But the partnership never got off the ground. In a statement to Modern Healthcare, Jay Alix, now called AlixPartners, Southfield, Mich., says the alliance "found few opportunities that were amenable to joint staffing."
French computer services group Cap Gemini bought Ernst & Young in 2000 and continued in healthcare process improvement, but the status of its healthcare practice is uncertain since the termination of some key partners (Sept. 22, p. 14). Meanwhile, AlixPartners was hired this year to operate bankrupt healthcare finance firm DVI.
Some ex-Cap Gemini employees have landed at Chicago-based Navigant, which is rapidly expanding, says Ben Perks, Navigant's chief financial officer. Navigant has expanded its healthcare staff to 150 from 125 since the Hunter acquisition and expects healthcare to become its largest business this year, with $65 million in revenue, Perks says.