American Healthcare’s $20-Million Venture : La Jolla Firm Designs a New Capital Fund to Aid Nonprofit Hospitals
La Jolla-based American Healthcare Systems has a simple goal for its soon-to-be-unveiled, $20-million venture capital fund. “We want to be the first guy on the block with the newest stuff,” said Charles Ewell, founding president of the association of 1,500 nonprofit hospitals that boasts $14 billion in revenues.
In addition to bankrolling start-ups, AHS will steer business toward them through a purchasing operation that buys everything from therapeutic drugs to intravenous fluid, said Ewell.
“We buy $2 billion worth (of products) each year, including equipment, drugs and supplies from more than 300 different vendors,” Ewell said.
Suppliers stand at attention when the association, which represents profitable hospitals with revenues that total $14 billion, “tells someone it wants to buy six tank cars of IV fluid,” Ewell said.
AHS, which also handles marketing, health plan administration, lobbying and health trend forecasting for its member hospitals in more than 40 states, entered the venture capital market because “who better than hospitals knows the needs of the industry,” Ewell said. “And, like everyone else, we expect to make money from our investments.”
A venture capital operation funded by nonprofit hospitals who are the investors in a privately held, for-profit corporation might seem like an unlikely combination, Ewell acknowledged. But the fund and other programs are driven by competition that has forced 500 hospitals to close during the last 10 years.
AHS members, Ewell said, are aware that “you’ve got to do well (financially) just to exist.”
Nonprofit hospitals have joined organizations such as AHS and the Irving, Tex.-based Voluntary Hospitals of America to gain an edge in an increasingly competitive business.
La Jolla-based AHS began operations in 1984 with 25 multi-hospital associations. VHA began in 1977 with 30 hospital associations.
VHA, which is owned by 89 nonprofit hospital groups, has 645 member hospitals and 165,000 beds. Members reported $23 billion in combined annual revenues during 1985, and it purchased more than $1 billion in goods and services for its members.
AHS hopes to provide “some good, sound business practices, some creative business practices” that mirror those found outside the health-care industry, Ewell said. To do that, it has created a health-care insurance package that will be marketed by Transamerica Occidental Life Insurance Co. and Provident Life & Accident Insurance Co.
The package is designed to help nonprofits compete with nationally marketed HMOs and PPOs offered by competitors such as Kaiser, Blue Cross and Cigna. It is not, however, aimed at the nation’s larger employers. Rather, it is tailored for companies with less than 250 employees, because “that’s where America works,” Ewell said.
AHS also represents its members in Washington, where health-care legislation is fashioned, and maintains a “trend-watching” organization that keeps members advised of “the twists, turns and changes” in the health-care industry, Ewell said.
Ewell became AHS’s first president in 1984 after helping to arrange the merger of two competing health associations. A consultant at the time, Ewell agreed to stay on board for two years.
“I was the architect of the thing and after the merger happened, (board members said) ‘You designed the thing so let’s see if you can make it run,’ ” recalled Ewell, who put his newly formed consulting company on hold in order to guide AHS through its initial two years.
AHS located in San Diego in part to accommodate Ewell. He had recently moved from Los Angeles, where he was director of Arthur Young & Co.’s national health care practice, to open the consulting firm in San Diego.
Ewell’s move to San Diego was driven by a bit of serendipity: Two years ago he met his future wife, Valerie White, owner of La Jolla Veterinary Hospital, while at a performance of “Terra Nova” at the Old Globe Theatre. When the couple decided to marry, Ewell agreed to move to San Diego so she could continue her practice.
“It would have been impossible to herd all of her dogs and cats down I-5 to my house in Malibu,” quipped Ewell, who will remain in La Jolla this month when he returns to the consulting work he “put on hold” two years ago when he founded the Governance Institute.
“I think we’ve got some points on the board during these two years,” Ewell said. “We’ve got the top management team in place, with the exception of my replacement, and there’s a search going on for that spot right now.”
At the Governance Institute, Ewell and 11 associates who are spread out across the country will work with hospital boards of directors on organization strategies and management conflict resolution.
