No Growth to Doubling Revenue in 2 Years – Case Study

In October 2012, we began to advise a $12 million company that hadn’t grown in 5 years. It was a good company, producing about 15% EBITDA margins and well over $1 million annually in free cash flow. We had known the CEO for several years and knew he was about three years away from wanting to sell his business and retire. “How about if we double or triple your business before we sell it?”, I asked. He thought I was on some illegal substance – but not so. After talking further, we were retained to help him create a growth plan, to determine what capital was needed and to find the capital. Result? October 2014, LTM revenue is in excess of $23 million. By doubling revenues, margins have improved slightly, and the equity value of his business (he owns 100%) has more than tripled. CEOs – good CEOs – often get into the weeds of a business that the big picture is lost. This CEO didn’t think it was possible to grow his business – he was a “one armed paper hanger”. Sometimes growth just needs vision – and the right set of contacts. I’ve spent the last 23 years …

Accountable Care Organizations

Today I’m going to focus on Accountable Care Organizations (ACO’s).  This past week, CMS announced their initial rules and regs for ACOs. Start with the basic:  what is an ACO?  It is an organization to be formed by hospitals, doctors and ancillary service providers to better manage the care of Medicare patients.  Think of the Mayo Clinic among a set of providers without common ownership.  The goal is to actually manage the care of a patient (boy does that sound familiar!!) in order to get the optimal outcome at the lowest cost.  The ACO then shares in a portion of that cost savings. This is yet another experiment in trying to find out how to insure that patients get the care they need in a system that pays providers for every time they provide care.   The system we have gives every healthcare provider the incentive to provide services, whether needed or not.  The system also gives incentives to get MRIs, use drugs and do a large variety of things that adds profits to someone’s bottom line, but doesn’t necessarily improve and may in fact reduce the quality of health care. CMS has been trying to figure out why healthcare might …

Tenet & Community Health

I don’t mind going out on a limb – so some projections regarding Community Health & Tenet. #1 – Tenet is history as a stand alone company.  Trading volume Friday was more than half the capitalization of the company.  The arbs and hedge funds are loading up in a big way and they will get to vote.  Company is gone. #2 – The price is probably in the $7.50-8.00 per share range, but could be higher.  The synergies and margin upside is so great in this company that CYH can use more stock and others can use cash to buy Tenet.  Tenet has a bloated infrastructure and bloated bureaucracy that can be rationalized. #3 – Other bidders could emerge.  Let’s run through the possibilities: HCA – unlikely.  They want to go public.  If they wanted the company, they could pay as much as CYH, or more since they are private. HMA, UHA & LifePoint – no way.  Bill Schoen doesn’t like big transactions at HMA.  LifePoint too small.  Alan Miller just bought Psyc Solutions and he really prefers the psyc business to the acute care business. Vanguard.  I’m certain that Charlie Martin would love to own Tenet.  Two ways to …

Home Healthcare — CMS Target #1

I’ve begged my friends who own home healthcare assets to get out. Sell. And all but one (way to go George) told me that they had too much upside in the business to consider selling now. Lesson #1 when running a healthcare company. Sell before major regulatory change. Sell when margins are too high to be sustainable — no one is good enough to make up for it in volume without MANY years of additional work. Sell when someone wants to buy your business — for when the day comes that CMS targets the industry, then NO ONE will be a buyer. Amedisys is the poster child for the most recent CMS and Congressional action. They have been accused of creating care plans with one eye on the reimbursement rules. Get to a certain threshold of visits, and reimbursement rises substantially. One visit less than the threshold and no bonus. Guess what? CMS thinks the industry is making sure the patient gets the one last, and arguably unnecessary, visit so the home health agency gets the higher payment. OF COURSE THEY DO. Wouldn’t you? One more treatment will help, not hurt the patient. Yet when the payment system is set …

Thank You Freedom Fest 2010

Last night was the conclusion of Freedom Fest 2010 at the Bally’s Casino in Las Vegas. The quality of this program was astounding and I congratulate all who were involved. You haven’t lived until you see Steve Forbes dressed up as George Washington in one of the skits at the closing banquet. We live in unique and dangerous times. As I’ve written to my clients on all too many occasions, the investment decisions that we make in the next couple of years will be the most decisions that we will ever make in our lifetimes. Get it wrong and we may be financially ruined, regardless of how many financial resources we have today. Get it right and even modest investors can make millions, securing the financial future for their families today and for generations to come. If you have never heard of Freedom Fest, click on this link and see what you missed. Something like 160 presenters over three days. I’ve been to lots of conferences and heard lots of speakers. The quality of the speakers at this conference was impressive. And the conclusion is unmistakable: the United States and most of the major countries around the world are on …