Capital gains

An upcoming initial public offering by a Chicago healthcare technology company has, as of yet, no estimated price for its shares. But for one of its owners, Ascension Health, the return on its investment hinges on more than the stock's value.

Ascension, St. Louis, which owns or sponsors 77 hospitals, was the first and is the largest customer for the 5-year-old Accretive Health, a revenue-cycle technology company. Ascension also owns 11% of the company as part of its corporate venture capital investing.

Ascension's clout has yielded the system stock in Accretive, guarantees that Ascension hospitals will receive lower fees under certain circumstances and, in some cases, provides the right to veto possible deals between Accretive and competitors. The arrangement between Ascension and Accretive, which unveiled its plans to raise $200 million through an IPO on the New York Stock Exchange early this month, underscored the additional strategic priorities that corporate venture capital funds like Ascension's can bring. Ascension officials were unable to comment during a regulatory quiet period.

For Accretive, the deal gave the company startup assistance, laboratory and consulting services, sales and marketing aid, and hospitals in the nation's largest private not-for-profit health system as customers, according to regulatory filings. Ascension hospitals accounted for $281.7 million, or roughly 71%, of Accretive's aggregate revenue for the year that ended Dec. 31, 2008.

Accretive's executives also hold a stake. Mary Tolan, president and CEO, holds 17.1% and Etienne Deffarges, executive vice president, has 6.7%. John Staton, chief financial officer, and Gregory Kazarian, senior vice president and general counsel, hold 1.5% and 1.4%, respectively.

Ascension started a $125 million venture capital fund in 2001 and launched another $200 million fund with two systems in 2007.

Paul Brown, managing director for Blue Cross and Blue Shield Venture Partners, a $116 million corporate venture fund backed by 11 health plans, said their investments go to companies of strategic importance to Blues plans, but must also deliver a financial return. “You've got to have both,” Brown said.

The Blues Venture Partners has poured capital into three companies since its start in September 2008, including a $5 million investment in Myca Health announced last week. The fund offers companies in which it invests potential access to expertise and a testing ground for products. Blues plans are also potential customers. But, “We never over-promise in that respect,” Brown said.

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