Wednesday, February 13, 2008

PEU Boys Hire One that Got Away?

CCMP Capital Advisors hired ex-Triad CEO, Denny Shelton, to advise the private equity firm on its healthcare acquisitions. That's rather magnanimous of them, as Denny's board chose to ignore the Goldman Sachs/CCMP offer and sell to Community Health Systems.

Mr. Shelton spoke last fall at Angelo State University about the future of healthcare. Using that as a crystal ball, what firms might CCMP purchase? Denny believes everyone should have health insurance, but he sees few groups stepping up to increase coverage. The CEO called employer sponsored health insurance a competitive burden for American companies competing in a global environment.

For a hospital company executive to make such a statement is both profound and disturbing. It's profound in its implication that it reflects widespread management thinking in the U.S. For that very same reason, it's disturbing. Triad needs to have insured patients to have a profit margin. Denny's ready to sacrifice the goose that laid his golden egg.

Mr. Shelton talked about the rich paying for their health insurance coverage, i.e., means testing Medicare. That's kind of him, given his $40 million gross on the sale of Triad. So high end insurance companies could do well in Denny's healthcare future.

The ex-CEO wants to drive inefficiencies from the healthcare system, other than increased interest expenses on debt used to finance hospital company buyouts. Automation, clinical practice improvements, drugs and medical devices could help squeeze costs from the system. It remains to be seen what CCMP buys in the way of healthcare companies. And it will be interesting to see the choices made by a man already wealthy beyond the normal citizen's dreams.

The real question, will Denny get to pay taxes on his private equity fees at the carried interest rate? Heaven forbid, the rich pay more to cover poor kids.

Mr. Shelton should thank his lucky stars Community Health System purchased Triad. CHS jettisoned Triad's non-profit hospital joint ventures. San Angelo's Shannon Medical Center sat briefly on this list. It turns out Denny just formed a company to do this very thing. His new venture is called Legacy Hospital Partners. Even the name greases the skids for Shannon to roll back into a deal with Denny. Shannon's captive health insurance company is called Legacy Insurance.

So Denny's not done, he's leading Legacy. Guess who invested in Shelton's new firm? That would be CCMP Capital Partners. My guess is Mr. Shelton already called those CHS nonprofit joint venture cast offs. Will Shannon Medical Center end up back on the acquisition list? Time will tell...