Initiating Coverage On Major ObamaCare Beneficiary University General Health Care System (UGHS) with Strong Buy $2.50 Target on @$600 Million Revenues by year end 2015
Ever since the US Supreme Court approved the Patient Protection and Affordable Care Act, aka ObamaCare, NBT has been analyzing the law to find the major winners and losers from this transformative legislation. Over the past 25 years NBT principals have found dozens of massive winning stocks…and equally horrific losers…that emerge from this kind of transformational changes to vertical industries.
In University General Health care System (UGHS) we have not only found a major beneficiary of the “Affordable Care Act”…we also found a completely unknown stock that has become a unique and astonishing health care system growth story for the next decade.
We will get into all the nitty gritty details in our upcoming NBT Equities Research report—but for now ALL you really need to know to feel confident starting a significant position in UGHS are the
- multiple beneficial macro-economic and regulatory conditions that ObamaCare has created for
- one of the only truly entrepreneurial publicly traded health care system operators in the United States
- to become a multi-$billion winner and consolidator of choice for the 200+ existing and 60+ under construction physician owned hospitals left economically disabled by the Affordable Care Act of 2010.
Investment Thesis for $2.50 Target
- University General Health Systems has become a primary beneficiary of new regulations from ObamaCare regarding physician ownership of hospitals in the United States. In a nutshell, buried within the 2700 pages of the Affordable Care Act are severe and immediate restrictions on physician ownership of acute care hospitals and the expansion of physician owned hospitals as well.
- Because of these new regulations on physician ownership of acute care hospitals, UGHS’s physician-centric acute care hospital system and high efficiency operating model has been presented a very unique opportunity to replicate its highly scalable “hospital-anchored regional health care ecosystem” model throughout the Southwest and most Southern regions. There are over 200 physician owned hospitals in the US affected by the ObamaCare ruling, and an additional 60+ privately owned and financed hospitals where construction and/or development has been frozen due to ObamaCare. Over half of these facilities are located within the Southwest/Southern regions which UGHS finds state and local regulations and economics desirable for replicating their model.
- With its publicly traded equity structure, UGHS has become the “consolidator of choice” in a buyer’s market for physician owned hospitals and out-patient health care facilities. Due to its primary care physician centric operating reputation and its ability to utilize the ACA Act “Stark Exception” (which permits physicians to convert privately held equity in hospitals through conversion to publicly traded securities), UGHS can use its acute care hospital equity as its currency to expeditiously develop regional hospital-anchored regional health care ecosystems though out the Southwest and Southern regions.
- We believe that UGHS is 3-4 new regional networks away from becoming a $500-600 million revenue health care system operator with a 1.5X-2X revenue valuation is derived from UGHS’s 50% higher organic and consolidation growth model and 40-60% higher EBITDA margin vs. comparable publicly held hospital owner/operators. With 360,000,000 shares outstanding NBT can forecast dilution to 400-500 million total shares outstanding from acquisitions and $billion+ valuation for the combined UGHS health care operations at the @$600 million revenue run rate.
- With reimbursement rates severely reduced by third-party payors & Medicare for physician owned out-patient health care clinics and ambulatory care centers (30-70% lower than normal and customary rates), an important aspect of UGHS’s accretive acquisition model is the pricing benefit inherent to the migration of a physician owned medical clinic (an ambulatory care center or ASC) to the hospital outpatient departments (so-called HOPDs). Most physicians find the HOPD model improves their income potential and significantly reduces their administrative responsibilities. In turn, this referral ecosystem greatly improves UGHS acute care facility occupancy rates and economics.
- At $500-600 million revenue run rate and >$1 billion market cap, equity/debt financing and Wall Street sell-side/buy-side health care analyst coverage and sponsorship should provide the additional low cost equity/debt financing horsepower for UGHS to double revenues and valuation again in a new cycle of regional expansion.
- With specialty health care providers industry mean price-to-sales ratio at 2.5X vs. .9X for large cap hospital operators, UGHS’s hybrid model at a $billion annual revenue rate should be valued @1.5-2 times sales or @$2 billion by 2015. This valuation represents 4-6X upside from current valuation.
Hospital/Health care Industry Primer
- Health care 18% of US GDP and fastest growing segment of US economy (34% increase by 2020)
- 12% of hospitals are for-profit
- 75% (37 of 50) top hospitals rated most highly by patients are For-Profit and physician owned hospitals
UGHS Company Snapshot (12/31/2012)
- Employees 1,000+
- Full time employees 850+
- Market cap ~$130 million
- Wtd Shares Outstanding 345MM
- Shares in the float ~14 million
- Total assets $141 million
- Adjusted EBITDA 3Q* $29.7 MM
- Adjusted EBITDA Margin—YTD 35%
UGHS Current Holdings
- 2 General Acute Care Hospitals in Houston and Dallas, Texas
- 3 Ambulatory Surgical Centers (ASC)
- A state of the art revenue cycle Management Company
- 3 senior living facilitates and Management Company
- 2 Physical Therapy Centers, a Sports and Rehab Center
- 3 Sleep Centers
- A 501 (a) – M.S.O. Which Acquires Physician Practices
- Hospital Industry Primer
- 12% of hospitals are for-profit
- 75% (37 of 50) top hospitals rated most highly by patients are For-Profit and physician owned hospitals
Operations
The business model anticipates the acquisition of acute care “host” hospitals and the development and operation of regional health networks within a defined radius of each host hospital that can provide services under separate departments under the hospitals’ acute care licenses.
These regional health networks and ancillary services will reflect a vertically integrated, diversified system, which will include provider-based “Hospital Outpatient Departments” (“HOPDs”) of the host hospitals and may consist of Free-Standing Ambulatory Surgical Centers, Free-Standing Emergency Rooms, Free-Standing Procedure Facilities, Diagnostic Imaging Treatment Facilities, Hyperbaric Oxygen Therapy/Wound Care Centers, and/or other ancillary service providers.
As of Dec 31, 2012, UGHS currently owns or operates the following centers:
- University General Hospital, which is a 69-bed general acute care hospital near Texas Medical Center in Houston, Texas
- University General Hospital, Dallas a 111-bed acute care hospital in suburban Dallas.
- A hyperbaric wound care center as an HOPD of University General Hospital doing business under the name University General Hospital -Hyperbaric Wound Care Center.
- Baytown Endoscopy Center, which is a 3-bed ambulatory surgery center. The Baytown Surgery Center is an HOPD of University General Hospital doing business under the name University General Hospital-Baytown Endoscopy Center.
- Mainland Surgery Center, which is an ambulatory surgery center in Dickinson, Texas, located approximately 25 miles from University General Hospital.
- Trinity Oaks senior living community in Pearland, Texas, which is an 80 unit senior living community providing independent living and assisted living services since 2001.
- Trinity Shores senior living community in Port Lavaca, Texas, which is a 63 unit senior living community providing independent living, assisted living and memory care services since 2007.
- Trinity Hills senior living community in Knoxville, Tennessee, which is an 87 unit senior living community providing independent living, assisted living and memory care services since 2007.
- Autimis Billing, which is a revenue cycle management company that specializes in serving hospitals, ambulatory surgery centers, outpatient laboratories and free-standing outpatient emergency rooms.
- Autimis Coding, which is a specialized health care coding company that serves hospitals, ambulatory surgery centers, outpatient laboratories and free-standing outpatient emergency rooms.
- Sybaris Group, Inc., which is a luxury hospitality service provider and facilities management company.
Recent Acquisitions
- 12/21/12 - Executed agreements to acquire an interest in approximately 31 acres of undeveloped land to establish a multi-purpose medical complex. The Pearland complex is anticipated to include a 50-bed general acute care hospital, a full-service 10-bed emergency room and an 8-bed intensive care unit, four operating rooms, and an endoscopy and cardiac catheter lab. The complex is also expected to include a 50,000 square-foot medical office building, providing physician offices adjacent to the hospital. Source
- 12/18/2012 - University General Health System Completes Purchase of South Hampton Community Hospital and Affiliated Medical Office Building. This is the first acquisition of their first flagship acute care hospital in the Dallas area. Source
Investor Presentation
Management Team
Hassan Chahadeh, M.D |
Dr. Chahadeh received his medical degree at Damascus University in Syria. He studied general surgery and anesthesiology at Baylor College of Medicine in Houston. In addition to the general residencies, Dr. Chahadeh also achieved certifications in advanced microsurgery and cardiovascular anesthesia. Upon completion of his residencies, he pursued a fellowship in Pain Management at the University of Texas MD Anderson Cancer Center in Houston. He is Board Certified in Anesthesiology, General Surgery, Advanced Microsurgery and Cardiovascular Anesthesiology. As an experienced businessman, Dr. Chahadeh has a diverse background in the development and management of health care entities including ambulatory surgery, imaging and wound care centers and their associated real estate ventures. As Managing General Partner & Founder of University General Hospital he has been intimately involved in the initial design, development and operational restructuring of the hospital. Being a practicing physician he is acutely aware of the prerequisites to successfully attract and retain loyal and productive physicians to a regional health care network. |
Michael L. Griffin |
With over twenty-five years’ experience in the health care industry, Mr. Griffin brings to UGHS a diverse background in health care finance, capital markets, operations and development. His experience as an auditor with Peat Marwick and CFO for multiple hospital systems has provided him with a unique understanding of the health care industry. In addition as Chief Financial Officer for Simmons Health care his role led him to such places as Australia to oversee development of medical facilities. Mike is responsible for Financial Reporting, Capital Financing, Budgeting, Patient Revenue Cycle and Billing, Facility Construction and Development, and Forecasting for New Ancillary Services. |
Donald W. Sapaugh |
Mr. Sapaugh has in excess of 30 years of health care experience, and recently was the Founder, President and Chief Executive Officer of TrinityCare Senior Living, established in January 2000. Prior to TrinityCare, Mr. Sapaugh, from 1978 until 1986 served in various financial management positions and as a Chief Financial Officer in five different general acute care and psychiatric hospitals. From May 1986 to May 1996 Mr. Sapaugh served as the Chief Executive Officer of Rapha Treatment Centers, of one of the largest specialty psychiatric management companies in the United States, which had management contracts with 49 hospitals in 18 states. In 1996, he founded PremierCare, a company devoted to seniors to avoid costly inpatient hospitalization, and partnered with over ten hospitals in six states. Mr. Sapaugh has an extensive background in development, acquisitions, and mergers. He also has public company experience where he served as Chairman and Chief Executive Officer, as well as a consultant and board member to many public companies |
Edward T. Laborde, Jr. |
Mr. Laborde is an experienced corporate, securities and finance attorney working in a variety of industries, including the development of health care facilities. He joined UGHS in January 2011 after 18 years of private practice in Houston-based law firms. From 2004 to 2011, Mr. Laborde was a Shareholder in the Corporate Securities and Finance Practice Group of the Houston office of Winstead PC. From 1993 to 2004, he was a lawyer in the Corporate Securities Practice Group of Houston based Chamberlain Hrdlicka and was made a Shareholder of Chamberlain Hrdlicka in January 2000. His experience includes acting as outside counsel to the developers of University General Hospital, a 72 bed general acute care hospital in the Texas Medical Center area of Houston, Texas, and other health care and health care real estate development projects on a national scale. Areas under Mr. Laborde’s oversight and supervision in his health care practice have included real estate development and construction, leasing and lease financing, physician syndication and private placements, vendor and payor contracting, bank and lease financings, tax planning, government relations, and administrative proceedings. Prior to attending law school, Mr. Laborde was a corporate insurance broker representing Fortune 500 corporations in the placement of multi-layered property and casualty insurance programs. Mr. Laborde received his law degree from Tulane Law School and his undergraduate degree from Georgetown University. |
Kelly Riedel |
Mr. Riedel oversees all aspects of UGHS’ operations. He has been with University General Hospital since its inception in 2006 and has served its chief executive officer from February 2008 until September 2011. Mr. Riedel has more than 18 years’ experience in the health care industry. In 2004, he was the founder and President of Sigma Consulting, a provider of executive management and information technology consulting services to hospitals throughout the United States. Previously, Mr. Riedel worked for Siemens Health Services as a principal consultant where he specialized in operational management and process re-engineering, along with clinical and financial software systems consulting for more than 100 hospitals nationwide. Mr. Riedel graduated summa cum laude with degrees in Business Administration and Business Management from the University of Utah and University of Phoenix and is a Certified Project Management Professional (PMP). |
Richard Valentine |
Mr. Valentine has over 25 years’ experience in the health care industry with both publicly-traded and private companies. His development and operations background includes home health, assisted living, long-term care, and positions at acute and specialty care hospitals. He previously served as President and CEO of Houston UGH Community Hospital; President and CEO of Pine Have Health Care; CEO of Windsong Home Health Care; Vice President of Operations at Autumn Hills Convalescent Centers, Inc.; and Vice President of Physician Relations at Southwest Health Group. Mr. Valentine earned his B.A. in Psychology and a Masters Degree in Psychology/Counseling at Louisiana Tech University. |
Chuck Schuetz |
Mr. Schuetz serves as the Chief Executive Officer of University General Hospital and oversees all aspects of the hospital operations. Mr. Schuetz has been with the hospital since September of 2011. Mr. Schuetz has over 30 years of hospital management experience. Mr. Schuetz ran the cardiopulmonary departments at Hermann Hospital, Houston, Texas as Chief Therapist and St Joseph Hospital, Houston, Texas as Director. Mr. Schuetz later became Chief Operating Officer for Conroe Regional Medical Center, Conroe, Texas. Mr. Schuetz held positions as Sr. Vice President of the Methodist Health care Network, Columbia Health care and HCA all in Houston, Texas. Mr. Schuetz was CEO of the Matagorda County Hospital District, Bay City, Texas; Heights Hospital, Houston, Texas; Kingwood Medical Center, Kingwood, Texas and Doctors Diagnostic Hospital, Cleveland, Texas. Mr. Schuetz also worked for Central Texas Physician Management managing a network of physician practices. Mr. Schuetz received his MBA from the University of Houston. |
Harmonee Vice |
Harmonee Vice serves as the Chief Operating Officer of the Hospital. In this role Ms. Vice coordinates the overall business operations. Ms. Vice is responsible for helping the hospital meet its strategic goals, implementing new service lines, strengthening the internal accountability systems, overseeing effective management and fiscal viability of the hospital departments. She has hands on experience in recruitment of physicians and professional staff focusing on high quality health care and service excellence. Ms. Vice has been responsible for numerous hospital departments including Human Resources, Risk Management, Quality, Marketing, Physician Relations, Laboratory and Imaging and has over 15 years health care experience and has held a variety of positions within the HCA and HPA health care systems. |
Robyn M. Suhlman |
A pioneer in the health care industry with over 23 years of experience, Robyn is a nationally recognized expert in managed care contract negotiations and third party payor reimbursement methodologies, as well as contract modeling analysis. Robyn has extensive experience working with federal and state government agencies, has provided testimony to the Ohio Senate’s Quality Care Task Force and appeared in a one-hour Documentary, “Cincinnati’s Medical Crisis” as a managed care expert. As a respected national speaker with extensive knowledge, Robyn has provided numerous educational & training sessions focused on building payor relationships, contract management and renewals, rate negotiation strategies, payment methodologies and legal contract elements in an evolving health care industry. Robyn has worked in many markets across the U.S. in the hospital and ambulatory health care industry. As EVP Contract Reimbursement, Robyn manages all phases of third party payor contract negotiations & management, along with identifying & obtaining opportunities to increase revenue and strategic business development. |
Summary
With the addition of $40 million in revenues and $15 million EBITDA from the new Dallas facility, 2013 looks to be nearly a $200 million revenue year for University General Health care System.
Through acquisitions and organic growth, total revenues increased 29.2% in 2011 to $72.5 million. Continuing the trend, total revenues during the first nine months of 2012 advanced 55.9% over the comparable period last year to $84.2 million.
The most recent ASC acquisitions (the three clinics at the Kingwood Diagnostic and Rehabilitation Center, the Robert Horry Center for Sports and Physical Rehabilitation Center and a sleep and imaging center in Baytown) are expected to contribute $12.5 million in incremental revenue and $4.2 million in EBITDA during the first year within the University General system.
By delivering concierge, patient-oriented care, the University General network provides uniquely competitive health-related services.
The physician-centric model encourages the delivery of patient-oriented services while concurrently generating incremental revenues within the company’s network. Moreover, management believes physician-centric model incentivizes doctors to minimize costs, which in turn helps University General to maintain cost controls.
The acquisition of the revenue cycle management firm Autimus provides scalable billing capabilities for further geographical expansion through acquisition.
Long-term, management’s strategic growth plan entails the creation and operation of multiple regional health care networks developed around general acute-care host hospitals in other metropolitan areas, replicating the process employed in Houston.
Each new regional network is anticipated to be built through the acquisition of a host hospital and ancillary health care facilities within a radius such that they can operate under the hospital's licenses as Hospital Outpatient Departments (HOPDs).
Each locally concentrated system is expected to consist of a core hospital with free-standing HOPDs (such as procedure facilities, diagnostic imaging centers, physical therapy clinics, among others) and Ambulatory Surgical Centers (ASCs). By consolidating providers into HOPDs, the University General network benefits from higher reimbursement rates. In addition, the company’s physician-centric model allows the network to capture incremental revenues for procedures referred within the system.
Buy shares under .50-.75 and let the UGHS team work for you over the next 2-3 years.
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Founder and Editor-in-Chief for NBTEquitiesResearch.com. Contributor and Anchor for the Fox News Channel and Fox Business Network 2000-2013. Chairman & CEO of NBT Group, Inc., a boutique private capital investment bank and investor relations organization.
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