Plano-based LHP Group Inc. is on a roll.
The company just moved into a 41,000 square-foot facility off the Dallas North Tollway in Plano, after expanding twice in its previous location. It now has 60 employees—double what it had in January. The new facility has the capacity for 120 employees.
It closed a deal this month on a joint venture with Hackensack (N.J.) University Health Network to take over ownership of Mountainside Hospital in Monclair, N.J. The two partners previously had HackensackUMC at Pascack Valley.
In June, LHP opened a new 83-bed facility with Austin-based Seton Family of Hospitals in Bell County, competing directly with renowned Scott & White.
And in May, the company finalized a 40-year lease and asset purchase with Sacred Heart Health System in Panama City, Fla., to lease and operate a 323-bed Bay Medical Center.
LHP is a privately held company that creates joint ventures with not-for-profit hospitals and hospital systems. It acquires majority ownership of healthcare companies and facilities, installs local leadership, and provides expertise behind the scenes.
Each LHP hospital has a local board of trustees, and at least half of the trustees are expected to be physicians. Its joint-venture partners retain 50 percent governance with as little as 20 percent ownership. They maintain their not-for-profit status and does not pay taxes on excess revenue from operations. As a for-profit partner, LHP pays taxes on its share of profits and charges a small management fee.
The company was formed in 2008. It’s funded by an affiliate of the private equity firm CCMP Capital Advisors LLC and the CPP Investment Board, the independently managed Canadian Pension Plan. There is irony in the fact that a quasi-governmental agency in Canada, which has a national healthcare system, is investing in U.S. healthcare.
LHP is led by several executives who were part of Plano-based Triad Hospitals, which was acquired in 2007 by Community Health Systems for $6.8 billion, of which $1.7 billion was assumed debt. Triad was the third-largest hospital company in the United States, trailing only HCA and Tenet Healthcare.
Triad was spun off from HCA in May 1999. In a similar move, HCA went private a year earlier in a $22-billion management-led buyout.
Triad’s management had attempted to take the company private, only to be outbid by Community Health Systems. CCMP and CPP were affiliated with the management buyout.
According to the company, LHP’s executives have been involved in 70 percent of all joint ventures in the last 20 years. They negotiated most of HCA’s joint ventures. The final 10 Triad hospital deals were joint ventures as well, according to Pat Ball, LHP senior vice president of strategic development and public affairs.
LHP is a joint venture partner with six hospitals that employ about 6,000. It has a letter of intent for two additional hospitals in Waterbury, Conn. Its business plan calls for adding three to five hospitals annually to its holdings. Lately, it has been one a month.
Centerpiece of Business Strategy
Few companies are as well positioned as LHP to capitalize on the recent U.S. Supreme Court decision upholding the Affordable Care Act.
In an internal memo on the day of the court’s decision, CEO Dan Moen wrote, ” … to the extent the ACA incentivizes an Accountable Care Model, investor-owned systems give independent, not-for-profit facilities a chance to join a financially healthy, geographically diverse network. This is the centerpiece of our business strategy, and we believe that not-for-profit institutions will increasingly seek a partnership with LHP in pursuit of this goal.
“We also believe that the ACA will accelerate a trend we’ve been seeing for a few years now: Hospitals are faced with unprecedented demands for capital to invest in new technology such as electronic health records (as much as $50 million for a mid-size hospital), implement new modes of delivering care such as telemedicine, and build new and improved facilities. For many hospitals, access to the capital necessary to get this accomplished is very hard to come by. LHP fills a distinct need in this regard.”
Moen told D Healthcare Daily that LHP is pursuing two kinds of joint venture partners: Sole community hospitals that need capital to expand or survive, or hospitals in urban or suburban areas that are part of a network.
Rebecca Hurley, LHP executive vice president and general counsel, said the network hospitals represented a greater share of the company’s attention before the ACA was affirmed by the Supreme Court. Since then, she said, LHP has been hearing more from sole community hospitals.
“The community hospitals had been waiting on the sides. They now have clarity,” Hurley said.
Kevin O’Brien, Dallas-based managing director of CCMP Capital Advisors, said LHP’s model is “easy to talk about but hard to execute. You need a competent senior team with the personal commitment and integrity to deliver. Most (for-profit joint venture majority partners) are used to unilaterally calling the shots. Our team truly collaborates.”
O’Brien said LHP’s business opportunities are growing because “they have delivered and the need continues to grow.” He expects LHP eventually to become a public company.
Steve Jacob is editor of D Healthcare Daily and author of the new book Health Care in 2020: Where Uncertain Reform, Bad Habits, Too Few Doctors and Skyrocketing Costs Are Taking Us. He can be reached at [email protected]