Home The Business of Medicine Getting stronger by getting bigger

Getting stronger by getting bigger

May 2011

Published in the May 2011 issue of Today’s Hospitalist

IN WHAT COULD BE the first in a coming rash of hospital medicine mergers, two management company giants “Cogent Healthcare and Hospitalists Management Group (HMG) “announced last month that they were merging to form the country’s largest private hospitalist company.

The company, to be known as Cogent-HMG, will include nearly 1,000 physicians and midlevels working in more than 100 facilities nationwide. But everyone involved expects the combined company’s market clout to only get bigger.

The two companies, which had always been friendly competitors, began talking about a merger several months ago, says Gene Fleming, who’s been Cogent’s president and CEO since 2005. Mr. Fleming is taking on the title of executive chair of the new company, which will be based in Nashville.

In part, Mr. Fleming explains, the merger was made possible because “a very strong capital partner” agreed to provide the new group with significant operating capital. But what really drove the idea of a merger, Mr. Fleming points out, is the complementary expertise that each brings. “We’re stronger together,” he says.

Complementary strengths
Both parties agree that the merger is a meeting of equals. Before combining forces, for instance, each represented the same number of physicians and earned an equal amount of revenue.

Cogent, however, has concentrated on establishing larger hospitalist groups, particularly in academic centers and urban markets. HMG has been one of the fastest growing private hospitalist companies in the country, doubling its revenue within the last two years while maintaining its track record of single-digit physician turnover. HMG’s growth has been in medium- and small-sized markets and community hospitals.

In terms of expertise, what did each company bring to the table? Stephen L. Houff, MD, who helped found the Canton, Ohio-based HMG in 1999 and served as its president and CEO, will be the CEO of the combined company and in charge of its day-to-day operations. He points to the most obvious advantages of the merger: scale and the ability to pool investments in both expertise and technology.

Specifically, Dr. Houff says, “We found that Cogent had built very terrific infrastructure to support medical informatics and data-sharing with clients, which was much more nuanced and detailed than many of our smaller clients had required.” Dr. Houff also cites Cogent’s long experience with working with nonphysician providers, including midlevels and case managers. And another capacity that Cogent has developed in larger groups, says Dr. Houff, should give it an advantage in what may be a new risk-bearing era for hospitals.

“They have been much more comfortable than I think other competitors in actually putting their dollars at risk around outcomes,” Dr. Houff says.

For its part, Cogent was drawn to HMG’s rapid success in establishing and managing high-performing groups in small and medium markets, says Ron Greeno, MD, one of Cogent’s co-founders and its chief medical officer. Dr. Greeno will serve as CMO for the combined company.

“The addressable market in small- to medium-sized hospitals is two to three times the size of the larger hospital market,” Dr. Greeno says. “Integrating the two companies means more capabilities on a greater scale, with greater stability and reliability.”

Dr. Houff agrees. “By combining forces,” he says, “we’ll be able to offer a much larger range of meaningful partnership options to current and future client hospitals.”

Product development
Previously, the two companies also tended to focus on different geographic areas, with HMG establishing most of its practices throughout the Ohio Valley and upper Midwest. Cogent, meanwhile, built most of its practices in the South and East, although a few are located in the West. According to Mr. Fleming, the merger will help the new company move quickly into areas of the country where neither group previously had a major presence.

While an infusion of capital helped push the merger along, so did the changing payment environment and the number of hospitals and hospital systems trying to maneuver in the new age of accountable care organizations (ACOs).

“As hospitals think about their integration strategies and how to prepare to take risk or be part of a network, they’re thinking about how to build out their primary care and subacute networks,” Mr. Fleming explains. Those networks will include not only physician specialty groups, he adds, but hospice and long-term acute care facilities (LTACs).

While Cogent-HMG has no plans of acquiring subacute providers, “we are looking to expand into the LTACs and hospices affiliated with our client hospitals,” says Mr. Fleming. His role in the new company will be to continue to work with Dr. Greeno on product development. At the same time, Mr. Fleming points out, as a result of the combined company’s capitalization, “We have significant capacity, as we find smaller hospitalist companies with a hospital-centric model, to add them.”

An array of hospital options
Dr. Greeno says that the merged company’s expertise in running groups of varying sizes and in different types of markets will be a big plus, particularly given the looming changes in health care payment and organization.

“As the environment continues to change, hospitals around the country are going to be at very different stages,” Dr. Greeno points out. “Some are going to be part of an ACO, while some are not,” and even those planning to become part of an ACO “will take different levels of risk. The combined company will be able to serve all those hospitals, no matter what their situation.”

Both Mr. Fleming and Dr. Houff emphasize that neither company plans to reduce its management ranks. They also point out that more hospitalist companies will probably take a similar route in the near future ” as will hospitals.

“Nobody thinks changes in the health care realm are going to stop,” Dr. Greeno says. “No one thinks that health care is going to become static any time soon.”

Phyllis Maguire is Executive Editor of Today’s Hospitalist.