About P3
Why It Matters
The U.S. Healthcare system is on life support. At $2.5 trillion annually, and expected to grow to 20% of GDP by 2017, it is the costliest system in the world. Moreover, it lags behind many other major countries on such critical indicators as life expectancy, preventable mortality, and infant mortality.
Hospitals consume roughly a third of all healthcare expenditures. Yet the U.S. ranks last among 19 developed countries in preventable deaths in hospitals. One of every three patients will experience a mistake. What's more, many hospitals, particularly non-profits, are either failing or barely breaking even. They make poor use of resources, are hobbled by bureaucracy and mismanagement, and focus more on the status quo than fact-based, patient-centered care.
For-profit hospital operators fare better, but their solution typically involves little more than selecting hospitals with favorable demographics, centralizing certain functions (management and purchasing) and throwing money at growing the more profitable service lines and eliminating others. Even worse, an emerging trend is for such operators to cancel insurance contracts and bill more than 3 times the average contracted rate and focus only on high-paying procedures and patients, leaving the under/uninsured to flee to nearby hospitals, driving up their costs and causing them to fail.
Investment in new facilities is often necessary, but not nearly enough. Costs must be rigorously and ruthlessly driven out of the system—not by reducing care or removing employees, but by redesigning systems and redeploying resources more efficiently. However, a thick web of entrenched management, special interests, and incestuous board relationships stands in the way of making real change in many troubled hospitals.
Some studies have estimated the intrinsic waste in hospital systems—particularly in failing non-profits—to be as high as 50% or more. We believe there is a way to get at these inefficiencies and remove them.
What P3 Does
P3 is a hospital operator with a unique approach. We recognize that the way to true change lies through control of the board and management of a facility. So we insist on full ownership—we buy the hospitals we manage.
However, our model goes far beyond that. We are experts in applying a host of methods and procedures to making hospitals operate more efficiently, focusing on patients and outcomes. We use the latest techniques, such as lean Six Sigma, ACO, PCMH, accountable governance, Toyota Production Systems customized for healthcare, etc.
Moreover, by cutting costs and redeploying resources more efficiently, we unleash new revenue sources. This new revenue, and the increased operating leverage we create, vastly improves the bottom line of failing hospitals, raising their valuations significantly.
The P3 Approach
We buy a hospital and associated assets in a public/private partnership, often at a large discount, using borrowed funds in a straight loan or buy/leaseback arrangement with the investor. Additional money is also used for improvements and working capital, and we pledge not to lay off any current employees. We then install a new board and management team, and operate the hospital as a non-profit. Together with the new team and our network of consulting partners, we orchestrate a turnaround of the facility.
Think of P3 in this context as a general contractor. We provide expertise, resources, oversight, and we find the investment capital for each hospital.
We pay each project investor a healthy coupon (8-12%) on the invested capital. P3 takes a 5-7% management fee from hospital revenue. Once we have fully transformed the hospital into a higher revenue, profitable enterprise, we sell it back to the community non-profit. By removing the interest/lease payment, as well as the P3 management fee, operating profit is boosted even more, ensuring a very high valuation and a large equity gain at sale. P3 then splits that gain 20/80 with the project investor.
P3 also expects to enter into venture arrangements with MDs for satellite facilities, as well as commercial opportunities in and around the hospital. In addition, the project investor will often have associated real estate development opportunities that are created in concert with the purchase of the hospital.
At Present...
In the tri-state area alone, we have identified at least 20+ hospitals that we think fit our profile and can be turned around using our methods. We have a short-list of opportunities on the East Coast that we are actively pursuing in conjunction with appropriate contacts and lobbying support.
For more up-to-date information please feel free to contact Geoff Teed, Founder and CEO, at 203.520.9471
