Nashville’s historic floodwaters didn’t dampen the sunny forecasts from healthcare industry experts at the Nashville Health Care Council’s yearly financial prognostication luncheon that packed the Loews Vanderbilt Plaza Hotel last month.

 

Labeled “Financing the Deal: Strategic Issues for Health Care,” the panelists literally were talking “deals” as they offered predictions based on a positive environment coupled with a wave of enthusiasm for serious discussions of mergers and acquisitions, IPOs, and other opportunities offered by a new availability of funding. In a city that has seen its share of tragedy over the last few weeks, the overall upbeat message was warmly received.

 

Caroline Young, president of the Nashville Health Care Council, welcomed guests to the popular annual event and announced a portion of proceeds from the event would be donated to Nashville flood recovery efforts. Young also encouraged businesses affected by the flood to visit the Nashville Chamber of Commerce website for resource information.

 

Introducing the panel’s moderator — Brent Turner, executive vice president for Finance and Administration for Franklin-based Psychiatric Solutions — Young pointed out that Turner has led all of the company’s financing activity as it has grown from five behavioral healthcare facilities to a market leader in the segment with approximately 100 centers nationwide. Perhaps appropriately, given the event’s M&A theme, it has recently been announced that Pennsylvania-based Universal Health Systems has moved to acquire Psych Solutions in a deal anticipated to close in the fourth quarter of this year pending Federal Trade Commission approval.

 

Event panelists included:

 

            Robert Fraiman, president and CEO of Cain Brothers in New York, who has a variety of experience with investor-owned companies, both private and public;

 

 

 

 

 

 

“The capital markets and the credit markets have essentially been shut down for the last 12 months, and the equity markets were more or less shell shocked. Now that we know what the bill says, there will be a need to ‘catch up’ from a market that is underinvested and a tremendous inflow of funding, as well as patients who will require care,” he said. “At the end of the day, the ability to access capital for the healthcare system and the need for it and the reform legislation are coinciding in a manner that will lead to a lot of activity.”

 

King agreed with Fraiman, saying many investors had been “standing on the sidelines waiting to see how it was going to look; and now for the first time in a year, we have an answer to give.” There is a “tremendous amount of pent-up demand for healthcare services IPOs, and we know there is a nice pipeline building,” he added. “The willingness of CEOs to engage in serious activity has increased meaningfully — before this, they were waiting to see if it was really going to happen.”

 

As to who would be the big “winners” from the legislation, King said that clearly it would be the hospital sector and providers. “The HCA filing for a public offering in early May was a clear indicator of a strong belief that reform will be a net positive.” He said the 13-14 hospital deals that have already been announced this year … a record number … are an indication of the level of interest.

 

Sullivan noted the healthcare legislation in the private equity world “is an access bill,” but said there remains a lot that must be figured out and much detail that isn’t included the 2,000 pages — such as who will be getting paid and who will manage the bill. 

 

He said companies will be challenged to find a way to provide high quality care on a continuing or long term basis, and investors will look for healthcare providers who can achieve quality while lowering costs. “They have to get better at doing this,” he admonished. “Providers and service providers who focus on delivery of high quality services while consistently reducing costs will be winners, including those who focus on health information technology.”

 

He continued, “Reform doesn’t really kick in until 2013-14 or beyond so we are really dealing with the back half of the decade.” Sullivan added, “We are looking at getting money to work five-to-six years down the road.”

 

Sweat agreed with Sullivan and noted inpatient and outpatient providers, pharmacy benefit management and companies involved in managing Medicaid and Medicare populations and markets all had strong potential to be lucrative in the new environment.

 

Riley predicted that we don’t know how the reimbursement profile would play out with the parallel gradual loosening of credit markets. He added, “Clearly, the interest in healthcare information technology will continue to be very active —with the big dilemma being how it will be paid for.”

 

When asked, “Has stress created opportunity?” Sullivan replied that markets have come back “quickly and stronger.” However, he continued, as values have jumped, it has become like “chasing a kite down the beach” to get a deal done before the price jumps. 

 

Turner asked Fraiman whether it was an advantage at this time to be a healthcare for-profit or non-profit. Pointing out that he preferred the term “tax exempt rather than non-profit,” Fraiman said there is a “continuing and accelerating convergence” between tax exempt and non-exempt facilities. He foresees there will be more deals like Vanguard Health Systems’ proposed purchase of the Detroit Medical Center, which would be the first time a tax exempt system is sold to a non-exempt system and remains both independent and intact.

 

Sullivan concluded that healthcare is a complex industry and is “only going to get more so.” He added that “successful deal making takes a lot of good minds around the table — you have to listen to all the voices.”

 

Young noted the predictions were good news for the city. “Today’s news from the panel promises continuing opportunities for entrepreneurialism and innovation in Nashville’s healthcare community. Panel members expect increased availability of capital and cite the importance of visionary management and healthcare expertise to this deal-making … both qualities that are the hallmarks of the Nashville healthcare industry,” she said.

 

Event sponsors were Baker, Donelson, Bearman, Caldwell and Berkowitz PC, lead sponsor, plus First Tennessee/First Horizon, Lattimore Black Morgan & Cain, and Marsh/Mercer/Kroll.