Over the past few years, Nobilis Health has grown from a small company in the southwestern United States to listing on the New York Stock Exchange earlier this year. The company initially went public as Northstar Healthcare in 2010 in Canada and grew its market cap from a $2 million to $450 million.
The company's base is Canadian institutions, but there is huge opportunity in the United States. "The U.S. market isn't just 10 times the market; it's 100 times the market in healthcare and after the NYSE listing we are looking to drive shareholders to our company," says Harry Fleming, chairman of Nobilis Health.
The company changed its name last year to Nobilis Health to avoid potential confusion with other companies and funds using the "Northstar" name. The company's services have also evolved over the past several years to focus expertise in a few key ASC procedures and advertising online and with television spots.
"We've focused on building a platform that we can use on a national basis," says Mr. Fleming. "We purchase small ASCs and populate them with cases through our marketing efforts."
The company is currently in the Houston, Dallas and Phoenix markets, but through a series of acquisitions Nobilis expects to grow bigger and faster using the marketing muscle they've built with its recent acquisition of the healthcare marketing firm, Athas Health, in December 2014. Nobilis typically owns 100 percent of their surgery centers, but there are opportunities for physicians to have equity as well.
"We have a history of buying distressed assets and turning them around pretty quickly, within the first one to six months," says Mr. Fleming. "But there are opportunities for equity partners that are strategic and valuable in some cases. Those partners align with us because they see our advertising and marketing strategies as the way of the future. They're willing to spend significant dollars from their revenues to drive cases to the centers and partner physician practices."
The typical ASC group has five to 10 physicians, and too often the centers have issues because physicians buy interest into the centers over the years, which dilute their patient flow. Other times the physician owners feel as though some partners drive more revenue than others and can't see beyond individual economic interests.
"If you provide half the revenue, you don't like that you only have 10 percent of the center," says Mr. Fleming. "But when we have ownership we can take those portfolios in our system and produce cash flow by boosting patient volume. There is nothing that attracts physicians more than patients."
This year, the company is expecting to:
1. Move into bigger and more creative EBITDA-producing portfolio companies.
2. Grow with companies that have multiple locations
3. Identify and expand into new markets through national advertising.
There are several factors in the healthcare space that impact the surgery center's success, including in-network contracting and reimbursement levels. Mr. Fleming says a target for an ASC's payoe mix is around 25 percent out-of-network.
"Out-of-network can be a healthy and reasonable part of the business," says Mr. Fleming. "But we've found if you have good in-network contracts, you can do well. ASCs that are good targets for us have strong in-network contracts. We look back to 2013 and 2014, our ASCs were around 80 percent out-of-network; we are closer to 50/50 right now. At the end of the year, we will bump up around 60 percent to 70 percent of our revenues coming from in-network contracts."
Self-insured employers also present a unique opportunity in the marketplace. Mr. Fleming and his team are developing bundled payments and capitated rates for self-insured employers. "If you go down that road, there are a lot of performance-based outcomes, so you have to have the best surgeons," says Mr. Fleming. "We dove into the market a few years ago, but we didn't have our quality data. We do now and we can prove we get great outcomes."
The Nobilis centers focus primarily on elective procedures, including spine and bariatrics. The centers recently added OB/GYN procedures as well, including a minimally invasive hysterectomy program, with great results.
"That procedure is really exciting because its' a great procedure and fits with our direct to consumer marketing model," says Mr. Fleming. "Bariatric cases, produce around 85 percent to 90 percent success rate and change the lives of patients. The patient can go home the same day and begin recovering right after surgery."
These procedures will likely remain strong in the future, as there is a large overweight population and a huge percentage of people with back pain.
"When we look at how to define the market, television ads are local and regional, but online and digital marketing is really important," says Mr. Fleming. The company purchased North American Spine last year and has worked on online and digital marketing for the practice. Patients fly into Texas from all around the country for procedures after consulting with physicians and sending over their MRIs for a reading.
"They come into town for about a week," says Mr. Fleming. "Our physicians evaluate them and perform whatever procedures they need. We have the ability to draw people not just from around the country, but also around the world."