History has shown that new investor-owned hospital chains are often born out of other companies' demise or turmoil.
Charles Martin Jr. formed Vanguard Health Systems after he sold OrNda HealthCorp to Tenet Healthcare Corp. in 1997. Two groups of former Quorum Health Group executives created hospital companies in the Nashville area after Triad Hospitals bought Quorum in 2001.
Some companies stumble into bankruptcy, only to have their hospitals re-emerge under the same management. New American Healthcare Corp. filed for bankruptcy in 2000, but a team of New American executives started a company called HealthMont that bought several of their former hospitals out of bankruptcy. Doctors Community Healthcare Corp., Scottsdale, Ariz., filed for bankruptcy in 2002, and the privately held company's former owners managed to buy four of its five hospitals out of bankruptcy and continue to operate under the same corporate name.
Most recently an offshoot of Doctors Community has sprung up, founded by an executive who left the company months before its bankruptcy filing.
Bruce Mogel, executive vice president of operations at Doctors Community from 1999 through 2002, has formed Integrated Healthcare Holdings, Costa Mesa, Calif. Mogel, a relative newcomer to healthcare, said the company is pursuing financially distressed and underperforming hospitals and is specifically exploring the hospitals put up for sale by Tenet. The company has not bought any hospitals yet. Mogel declined to answer further questions about Integrated Healthcare, citing confidentiality agreements.
Integrated Healthcare is a publicly traded company that, under other names, has existed for 20 years. Most recently known as First Deltavision, it has never had any significant operations but has merely existed as a corporate shell, according to a May quarterly securities filing.
First Deltavision acquired a privately held company, Mogel Management Group, in March. Mogel had formed the company to own and operate hospitals but had not acquired any hospitals yet. First Deltavision changed its name to Integrated Healthcare Holdings after acquiring Mogel's company.
Mogel, who is Integrated Healthcare's chief executive officer, helped run a Doctors Community hospital in Chicago, Michael Reese Hospital and Medical Center, from 1999 through the middle of 2001, and then worked in the corporate headquarters until January 2002.
Joining Mogel on the management team are Larry Anderson, a lawyer who was executive vice president and counsel in charge of litigation for investor-owned Alta Healthcare, Los Angeles, which owns four hospitals, and James Ligon, who has more than 30 years of hospital experience in California.
Anderson, Integrated Healthcare's president, spent 32 years at the U.S. Postal Service before he went to Alta. Ligon, Integrated Healthcare's chief financial officer, has worked for investor-owned hospital companies including American Medical International, HealthTrust and Pacific Health Corp.
Integrated Healthcare is the latest in a string of hospital companies to spring up over the last year or so (March 1, p. 40), but the field is far from crowded, said David Felsenthal, a principal with Wellspring Valuation, which produces hospital valuation reports used in merger-and-acquisition activity.
"There are so many of these hospitals which are not making bottom line, and they have a choice. They either go out of business or they try to sell to or merge with somebody who's going to keep them going," Felsenthal said.
Investors seem willing to fund startup companies that are designed to fill small niches in the hospital business, although sectors such as pharmaceuticals and biotechnology still draw most of the venture capital.
For startup hospital companies, Felsenthal said, the first few deals are critical. "You start with the small ones, and you just keep buying," he said, "but you've got to be successful with the ones that you're buying."