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HOW I DID IT

How I Did It: Todd Johnson, President and CEO, Hospital Partners of America
 

Pain reliever Todd Johnson’s company buys and fixes hurting hospitals. Doctors who invest, like Ryan Thai (right), help the healing.

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As told to Cara Cannella

Industry: Health

2007 Inc. 500 Ranking: 3

Three-Year Growth: 12,227.2%

Cost pressures are straining health care providers, but there is money in the hospital business. Hospital Partners of America grew to $348.9 million in revenue last year by acquiring what president and CEO Todd Johnson calls "broken" hospitals and running them better. The Charlotte-based company owns five hospitals in Texas and California, with more coming. HPA scrutinizes everything from marketing to insurer contracts when it buys a facility. It also lets doctors become minority partners in hospitals in which they work.

There are lots of issues with the health care system. Lots of trends are putting burdens on the consumer. But hospitals, generally speaking, have been stable. Over 30 years, hospitals on average have profited 4 to 6 percent annually.

We don't do many acquisitions, maybe two a year. We usually don't compete against the larger public companies. We focus on broken hospitals, which in many cases the public companies don't focus on because of potential dilution to their earnings per share in the short run. We have various teams that do rigorous diligence. Often the hospitals we acquire have made wrong decisions that led to difficulties--for example, not controlling expenses well enough. In some cases they're losing money. Their leading physicians may feel disenfranchised because they're not being consulted on major administrative and clinical decisions.

We focus on new program development, from adding certain pieces of equipment to new services. Bariatric weight loss surgery is getting to be pretty popular.

It's a lot of pick-and-shovel work to start aggressively managing expenses. We have a team of people who focus on attempting to get better rates under existing managed care contracts.

Physician ownership will be the biggest trend in hospitals over the next couple of decades. This is really a chance for doctors to have some control over where they practice and a chance to help make the place where they practice more efficient, and thereby make their lives easier. The financial gains are a secondary motivator for them.

Existing members of the hospital's medical staff invest with us as minority partners, along with physicians who don't currently practice at the hospital. When we're looking at an acquisition, the doctors are clearly helpful with diligence. Some of it is operational decisions, like are we going to rename the hospital? We'll market new services and involve the physicians in that.

My grandfather was a management consultant working in New York, and in his twenties had an assignment to install a cost accounting system at a small, financially troubled textile company in Winston-Salem, North Carolina. The owner, Mr. Hanes, liked him so much that he talked him into leaving his consulting firm and joining Hanes, the company that makes underwear and T-shirts. He worked there for more than 30 years, including serving as chairman and CEO. My father started a wholesale distributorship of textile products and ran it until he died, when I was 8. So my attraction to entrepreneurial ventures was partly a result of something in my genes, possibly.

The biggest challenge has been gaining credibility among sellers of hospitals and physicians. Our first transaction was Austin Surgical Hospital, our smallest acquisition to date. The more emotional deal was St. Joseph Medical Center in Houston in August 2006. It was our largest to date by a long shot, a $125 million purchase price, and it was a turning point in terms of gaining stature and credibility.

IMAGE: Nancy Newberry
Last updated: Sep 1, 2007




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