By Visions Staff
In the last issue of VISIONS, we reported that Humana had just agreed to sell Concentra to a joint venture comprised of Select Medical and Welsh, Carson, Anderson, and Stowe. The selling price was $1.055 billion in cash and the deal closed in June.
With more than 1,000 facilities, Select Medical (selectmedical.com) is the largest operator of outpatient rehabilitation clinics in the United States. Welsh, Carson, Anderson, and Stowe, familiarly known as Welsh Carson (welshcarson.com), is a private equity firm specializing in healthcare and information services.
When describing the rationale behind the deal, senior management at Select Medical noted the overlap of the two organizations’ facilities in many markets. For example, Select could attract many physical therapy referrals that do not go directly to Concentra centers because of distance or other factors.
Occupational health is not new to Select. According to Select’s Chief Financial Officer Marty Jackson, the company already operates 22 occupational health facilities including the NovaCare clinics in Missouri and eastern Pennsylvania. The company is not a stranger to alliances with large healthcare systems either, having developed joint ventures with such industry giants as the Baylor Health Care System, UCLA-Cedars Sinai, the Cleveland Clinic, and Emory Healthcare. Welsh Carson, a New York-based private equity firm, owned a majority of Concentra’s equity between 1999 and 2011. In fact, Welsh Carson has financed several deals involving either Select or Concentra (concentra.com). It is familiar with the companies’ capabilities and culture.
One interesting aspect of the acquisition is the faces called back to man the deck. Four executives who had been part of Concentra’s emergence from a tiny three-center network in the early 1990s are rejoining the fold. After a four-year hiatus, former Concentra president and C.O.O. Keith Newton is returning to serve as its new C.E.O. John Carlyle, a Concentra co-founder and former C.E.O., is also returning in a part-time advisory capacity. Jim Greenwood and Dan Thomas, both former Concentra C.E.O.s, have joined the Concentra Board.
“I cannot overstate what reuniting the old guard means to Concentra,” said John Garbarino, former C.E.O. of Occupational Health + Rehabilitation (OH+R), a Massachusetts-based consolidator that sold its 34-center network to Concentra in 2006. “They are all widely respected and understand how to operate the company. These are the guys that built the company.”
Mr. Garbarino added, “I would imagine other suitors also reached out to one or more of the big four.”
Nick Kirby, director of business development at OH+R until its 2006 acquisition by Concentra, stayed on with the company for six more years and thus knows it as a competitor and an employee. “We competed head to head for over a decade; OH+R was one of the smaller consolidators and Concentra was the giant and I came to have great respect for the company.” Mr. Kirby cited the quality of the company’s leadership, its business and organizational competence, willingness to make investments when necessary, and ability to stick to well-thought-out strategies.
“We [OH+R and Concentra] were major competitors for many years and I was generally skeptical about the company. But I must say that [ultimately] I was extremely impressed.” Mr. Kirby particularly lauded the company’s vision and operating acumen.
When reflecting on the ultimately unsustainable Humana-Concentra relationship, Mr. Kirby reiterated a theme consistent with others interviewed for this story: it is hard for an insurer to also be a provider. “They have vastly different world views and different operating protocols. The two just don’t integrate well.”
New Concentra C.E.O. Keith Newton noted that “the Humana vision was that the Concentra footprint and management infrastructure could be leveraged to expand into more appropriate primary care and medical-home models relative to [Humana’s] Medicare Advantage population. It just did not work; such integration was not a good strategic fit at the end of the day.”
The Select Medical/Welsh Carson consortium was hardly Concentra’s only suitor. Three other suitors, including U.S. HealthWorks, which was acquired by Dignity Health in July 2012, reportedly made it to the negotiation table. In fact, many felt the U.S. HealthWorks-Concentra union made considerable strategic sense and was almost inevitable since such an acquisition would result in a national network of more than 500 occupational health centers. One industry insider suspects that negotiations broke down because of incompatible visions: Concentra seemed committed to a value-driven model consistent with the principles of the Affordable Care Act, whereas the U.S. HealthWorks vision seemed to place emphasis on volumes.
Mr. Newton, who was Concentra’s president and chief operating officer through 2011 and will serve as its new C.E.O., stressed that Concentra is going to be extremely focused on growing occupational health. When asked how things will be different from the Humana era, Mr. Newton spoke of one overriding theme: focus and execution. Concentra will be more focused on its core fundamentals while also leveraging the Select partnership but operating as an independent company. “I would not have come back if it were simply to run a division of a larger company,” Mr. Newton said.
Frank Leone, M.A., M.B.A., executive director of the NAOHP, which publishes this newsletter, thinks the latest Concentra acquisition will be good for the industry. “At the end of the day, despite isolated competitive situations with health system-affiliated programs, Concentra is likely to bring a great deal to our sector. They are sound operationally and that will set the bar higher for other programs. And they are looking to joint venture or otherwise engage with existing programs,” noted Mr. Leone. “A more focused Concentra will bring a jolt of energy to the occupational health field.”
Select Medical views the partnership as exceptionally positive. Mr. Jackson, Select’s C.F.O., shared that some of their investors voiced initial concern that Select Medical was making a foray into the urgent care sector. “[This] is not about urgent care,” Mr. Jackson said. “This is about occupational health. Our focus is on growing the business by aligning Concentra centers with Select Medical facilities in certain markets, engaging in joint ventures with hospital systems and smaller hospital entities, making acquisitions, and even building new facilities.
Mr. Newton feels that rather than integrating with a Fortune 400 company such as Humana, Concentra will now have the freedom to concentrate on its core fundamentals and growth. One thing is certain, Concentra will play an even more prominent role in the occupational health niche going forward and will have a significant effect on occupational health programs within and beyond their domain.
