For most of the past 25 years, Joshua Nemzoff has been in the business of negotiating hospital deals in which he was neither buyer nor seller, handling more than $7 billion in healthcare transactions without ever acquiring a property for himself. Nemzoff is working to change that, as he announced last week that he's starting a new for-profit hospital company, StoneBridge Healthcare, New Hope, Pa.
The company will focus on buying distressed hospitals in urban and suburban markets with populations of 200,000 or more in joint ventures with physician investors, Nemzoff said in an interview.
"I see a lot of not-for-profit hospitals in trouble. Not only can I improve the financial performance, but also do it with the medical staff they have," Nemzoff said. Not-for-profit boards are reluctant to sell until it's the only choice left to them, Nemzoff said, but with StoneBridge, "They are giving up control to their medical staff. That tends to make it significantly more palatable."
Nemzoff had some experience trying to launch a hospital company before. In 1998, he started MissionHealth, which tried to start joint ventures with not-for-profit hospitals (Feb. 2, 1998, p.22). Nemzoff struggled to convince not-for-profit hospitals that they could receive equity from MissionHealth and still retain their tax-exempt status. Moreover, the collapse of Allegheny Health Education and Research Foundation poisoned the lending market for hospitals at the time, Nemzoff said. MissionHealth never made any deals.
This time, Nemzoff will be working to convince physicians to invest in and help run the hospitals where they practice, which could qualify them for Medicare's whole-hospital exemption. The whole-hospital exemption allows physicians to refer patients to hospitals in which they have an ownership stake, although the exemption was narrowed by excluding specialty hospitals when Congress imposed a moratorium on physician-owned specialty hospitals in 2003.
Whole-hospital joint ventures with physician investors are difficult deals to put together, Nemzoff said. That's why they have been rare even though they have proved effective at turning around a hospital's finances. But Nemzoff said he has worked on eight such deals, representing hospitals and physicians at different times, giving him the experience necessary to pull them off.
A few of the new hospital companies launched in the past three years (March 1, 2004, p. 40) have included the goal of bringing in physicians as investors or partners, including Hospital Partners of America and the now-defunct Symphony Healthcare.
StoneBridge does not have an equity investor such as a venture capial firm, Nemzoff said, and the ultimate goal is not to build a big company that can make a public stock offering-something he called the "Nashville model"-of for-profit hospital companies. He said his goal is to acquire two or three hospitals in the next 12 months and slowly add to that base.