Texas-based LHP Hospital Group, an unknown name in Connecticut just a year ago, is fast becoming a major player in the state’s health care industry.
As the majority stakeholder in the proposed St. Mary’s and Waterbury hospital merger announced last week, the private health care operator will be overseeing one of the largest hospitals in Connecticut with over $520 million in annual revenue.
And LHP’s deal making may not be complete. While CEO Dan Moen said the company is currently not in discussions with other Connecticut hospitals, he does see a potential for other moves.
“We are very interested in opportunities to do more in Connecticut,” Moen said.
With two major health care networks already well developed in Connecticut — Hartford Healthcare and Yale New Haven Health System — Moen said he sees the prospects for a third network to form in the state.
It’s too early to tell whether or not LHP will ultimately drive that effort. But LHP is already making a big splash.
For now, the Plano, Texas-based company is focusing its attention on the complex St. Mary’s — Waterbury hospital deal, which will likely garner a close look from state and federal regulators, particularly the Federal Trade Commission which has stepped up its oversight over hospital mergers because of all the recent activity.
The deal, which includes a $400 million investment to build a new state-of-the-art medical center in Waterbury, will be of particular interest to regulators because it will convert Waterbury and St. Mary’s hospitals from non-profit to for profit operators.
It’s a major change, particularly in Connecticut where for-profit acute care hospitals are nearly non-existent. In fact, Sharon Hospital in the sleepy northwest corner of the state became Connecticut’s first and only for-profit hospital in 2002, when it was purchased by Tennessee-based Essent Healthcare after being on financial life support for years.
Quinnipiac University management professor Angela Mattie said that while the for-profit model is much more prevalent in other parts of the country, particular the south, it’s a largely foreign concept in the Northeast.
“Patients and practitioners in Connecticut and the Northeast have had a lukewarm reception to for-profit health care,” Mattie said.
Mattie added, however, that the Waterbury deal makes sense in a lot of ways, especially considering the aging infrastructure of both hospitals and the financial problems that have plagued both institutions over the years because of the intense competition between them. The hospitals are located just miles apart in the Brass City.
“The move toward consolidation is the reality,” Mattie said. “At this point, we are going to see business models or players unfamiliar to Connecticut stepping in. The small acute care hospital will no longer exist.”
The trend toward hospital consolidation is no longer a new concept, and is being driven by declining government reimbursements, pressure to invest huge amounts of capital in technology and infrastructure, and the constantly changing political and regulatory landscape, including the new federal health care reform law.
State Sen. Terry Gerratana, D-New Britain, who co-chairs the public health committee said she has mixed feelings about the deal. On the plus side, she sees it as a good opportunity for both hospitals to eliminate debt, shore up their financial positions, and build a new state-of-the-art medical center in the city.
It will also provide a new major taxpayer for Waterbury.
Gerratana said, however, she has questions about the for-profit model, like how the company would meet the needs of uncompensated care.
“This is something new,” Gerratana said.
LHP is a privately held company that forms joint ventures to own, operate and manage acute care hospitals, particularly institutions that are starved for capital and in need of a partner to ensure long-term financial stability.
Waterbury and St. Mary’s fit that bill perfectly.
LHP is relatively new, having formed in January 2008. But its top brass has deep experience in the health care industry.
CEO Moen and board chairman Denny Shelton were former senior executives at Texas-based Triad Hospitals Inc., a publicly traded company that just a few years ago was the third largest health provider in the U.S., operating 54 hospitals and 13 ambulatory surgery centers in 17 states.
In 2007, Triad was sold to Community Health Systems, another Texas-based publicly traded health care company, for over $5 billion.
Shelton, who was previously a hospital administrator in Illinois, Georgia, North Carolina, Iowa, Missouri and Louisiana, was the CEO and chairman of Triad, while Moen was Triad’s executive vice president of development.
Four LHP board members were also members of the American Hospital Association board of directors, so they have a deep bench of expertise.
LHP is owned by affiliates of the private equity firm CCMP Capital Advisors LLC, the CPP Investment Board, or CPPIB, as well as some members of management and the board of directors.
New York-based CCMP Capital Advisors LLC is a global private equity firm that has invested over $13 billion in buyout and growth equity transactions since 1984, according to its website.
CCMP concentrates on four targeted industries including consumer/retail, industrial, energy and healthcare, and is a predecessor firm of J.P. Morgan Partners.
LHP’s other major financier is CPP Investment Board, which is a professional investment management organization that invests the assets of the Canada Pension Plan.
LHP’s board is populated with executives from both organizations, including Shelton, who is a senior advisor to CCMP Capital Advisors.
LHP owns and/or is partnered with three hospitals and has a fourth hospital in New Jersey — Hackensack University Medical Center — under contract.
The company also has some experience helping build new hospital facilities, which is a significant part of the Waterbury deal.
LHP partnered with and provided capital to the Portneuf Medical Center in Idaho, which just built and opened a new 187-bed, nearly 300,000-square-foot medical center in that state.
