Tuesday, April 27, 2010

Frist Fortunes Under Health Reform

Dr. William H. Frist noted the private sector nature of Obama's health reform on CSPAN's Washington Journal in October 2009.
What the Obama administration is doing is not socialized medicine. Socialized medicine is where the government owns the hospitals. They own the doctors and they decide how much people are getting paid. And that’s not what’s in these bills.
The former Senator Majority Leader indicated he could vote for the bill. Now that it's passed, how might the Frist family benefit?

Dr. Frist has been a partner with Cressey & Company since 2007. Cressey's website states:

Cressey & Company, with offices in Chicago and Nashville, is a private investment firm focused on the healthcare industry. The principals of the firm have been active healthcare investors for nearly three decades and have invested in a wide range of healthcare businesses. Cressey & Company seeks to invest in high-potential segments of the U.S. healthcare market.
Cressey describes the Senator's role:

Senator William H. Frist, MD is a Partner and Chairman of the Executive Board responsible for acquisitions, divestitures and oversight of portfolio companies.

Cressey joins legions of private equity underwriters (PEU's) salivating over the profit potential of health reform. Carlyle co-founder David Rubenstein sees 30% annual returns coming from health care. How might the Obama plan deliver?

First, it postpones covering most of the uninsured until 2104. This creates tremendous pressure on safety net hospitals. I opined such facilities might sell out on the cheap to their for-profit brethren. No sooner did the words hit the page, a Detroit nonprofit system inked a deal with Blackstone's Vanguard Health System. Within a week, the largest nonprofit community hospital system in New England, Caritas Christie Health System found itself in the jaws of hell hound Cerberus Capital Management.

Four years from now coverage expansion will kick in. Uncle Sam will foot 100% of state Medicaid expansion and subsidize individual health insurance for millions.

This fits well with Cressey's time horizon for new investments, "3 to 7 years, average approximately 5 years." What's on the investment plate, given the bill's passage? The private sector loves growing its federal book of business. Dr. Frist sits on the board of URS, an infrastructure firm with 45% of its revenue from Uncle Sam.

Second, health reform provides government subsidies, $1 billion in tax credits or direct Treasury loans for "innovative health care companies."

Should Uncle Sam not be a financier, Cressey's portfolio includes companies likely to benefit from reform. The range covers Medicare home health, hospice, acute care hospitals, dialysis, institutional pharmacies, specialty hospitals, infusion services and behavioral health.

The private sector stands to win big. Dr. Bill Frist knows it, as does his family. Frist's brother and nephews benefit from HCA's recent dividend payment and upcoming independent public offering (IPO). Dr. Frist's son works for The Carlyle Group, with its twisted eye on health care.

A toast to the Frist's, the first family of for-profit health care.

Update: Bill Frist is on the board of Accolade LLC, which helps employers cut the cost of employee health care. Frist is also on the board of Select Medical Holdings, Aegis Sciences Corporation, the Millennium Challenge Corporation and formerly mentioned URS.

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