News Column

Healthcare Business Booms Amid National Discussion Over Reform

Aug. 27, 2009

Rob Kuznia--HispanicBusiness Magazine

Healthcare Business Booms Amid National Discussion Over Reform

As small businesses struggle to regain their footing amid a widening recession, the complex topic of healthcare has emerged as a focal point of a national policy debate.

At least three healthcare reform proposals are working their way through Congress this summer, and the outcome of those competing plans will have a dramatic impact on businesses, healthcare providers and consumers across the nation.

With the financial stakes so high, HispanicBusiness Magazine for the first time presents a healthcare sector analysis. In this issue, in the coming months, and at, we will delve deeply into healthcare markets and the challenges they face.

With the industry at a historic crossroads, Hispanic entrepreneurs in the healthcare business have offered an insightful analysis of what the future may hold for small businesses, the government, and the growing number of people who are without healthcare insurance.

These are good times for healthcare companies that contract with the federal government, and the first person to admit this is Ted Terrazas, chairman and CEO of San Antonio, Texas-based TerraHealth Inc.

"The government has a lot of work," Terrazas told HispanicBusiness Magazine. "Right now, during the recession, it's a great place to be ... with our nation spending so much in the Department of Defense and the stimulus package."

From a business standpoint, the 8-year-old company's biggest problem might be its own success: Its revenues dropped nearly 18 percent in 2008. But that's largely because the Department of Defense contractor is getting too big to be considered a disadvantaged business, meaning it no longer qualifies for certain federal contracts.

"We've replaced them all," insisted Mr. Terrazas, who, prior to starting the company, retired from the military as a hospital administrator at age 40. Moreover, he said, the company is poised to double its size by the end of 2010.

The TerraHealth business plan includes a dizzying array of functions. In Afghanistan, the company was responsible for getting a hospital up and running so the Afghanis could take it over. In New Orleans, after Hurricane Katrina wiped out the city's hospital services, TerraHealth helped set up a floating hospital in a huge Navy ship named the USNS Comfort. The company also runs "readiness centers," where TerraHealth doctors conduct physicals and other assessments for soldiers coming to and from Iraq and Afghanistan.

"Everything that has been bad for the country has been good for us," Mr. Terrazas said wryly.

When it comes to healthcare reform, Mr. Terrazas confessed to being a "bit of a maverick." Although Mr. Terrazas acknowledged that the costs of healthcare are going up, he disagrees with the conventional wisdom that this trend should be reversed. The reason: You get what you pay for, and if a society demands better care, it's going to be expensive.

"Americans have a high standard for healthcare," he said. "If you push that cost down, you are going to get inferior quality -- the kind of quality Americans don't want."

Pacer Health Corp.

Another lucrative element in the healthcare sector is the business of hospital management.

Rainier Gonzalez is the 36-year-old CEO of Pacer Health Corp., a Florida-based healthcare company that concentrates on buying distressed hospitals in small markets and turning them around.

Mr. Gonzalez is blessed with the gift of good timing. Back in the late 1990s, after graduating from law school at Indiana University, he and a few business associates started a dot-com company called Brick Mountain LLC. They sold the company to Jupiter Media in 2000, just before the crash of the dot-com industry.

After this triumph, Mr. Gonzalez decided to try his hand at the healthcare industry. At the time, though, his goal was modest: to focus on senior assisted living centers.

In 2003, he built one in Lake Charles, La. Not long after, the small hospital in the same rural area found itself on the brink of insolvency, and Mr. Gonzalez was presented with an opportunity to take over the company. He accepted. That same year, the hospital was wiped out by Hurricane Rita. Using FEMA money, he rebuilt. Three years later, it was destroyed again by Hurricane Ike, and he rebuilt again.

Today, his company runs four hospitals, along with several family medical centers and rural clinics. Mr. Gonzalez said hospitals in rural areas often fail because they have so few patients. These hospitals are often better served by belonging to a larger entity, so losses from one can be offset by surpluses from another, he said.

With those hospitals owned by Pacer Health, "there are more legs to hold up the table," he said. On healthcare reform, Mr. Gonzalez said he believes trying to reinvent the wheel is counterproductive. He would prefer an approach that strives to preserve what works, and patch up what doesn't. One area in need of a patch-up, he said, is how physicians currently have scant incentive to offer preventative care.

"If you have an emergency surgery, that surgeon gets reimbursed at a high level, while if you go to a doctor for a six-month checkup, that doctor might get $35," he said. "If they were reimbursed $100 or $200 (for a checkup), there might be more incentive to get their patients through the door."

Mr. Gonzalez added that the current system is already so complex that revolutionizing it might only make matters worse.

"I'm not saying the system is perfect, but I also don't want to throw the baby out with the bath water," he said. "Despite what the media says, if I have to be sick anywhere in the world, I want to be sick in America."

Growth of Sector

At a time when countless companies in the automotive, retail, and manufacturing industries endured crippling financial blows, the healthcare sector not only survived, but in many cases it also thrived.

In 2008 alone, when revenues for the Hispanic-owned companies in the real estate sector dropped by a third, the combined revenues for the nation's 10 largest Hispanic-run enterprises in the healthcare sector surged by 22 percent, according to HispanTelligence, the research arm of HispanicBusiness Magazine.

Part of the growth can be attributed to the downturn of the U.S. economy.

As more people lose their jobs, they become eligible for Medicaid, the state- and federally funded provider of health insurance for the poor.

Meanwhile, runaway healthcare costs are putting the squeeze on small businesses, squelching their ability to offer health benefits to their employees and, in some cases, leading to layoffs. Since the early 1990s, a third of all small businesses have been forced to drop the coverage offered to their workers, according to the U.S. Small Business Administration. Hispanic-owned businesses are particularly vulnerable, as the vast majority of them employ fewer than 10 employees.

David Ferreira of the U.S. Hispanic Chamber of Commerce says the flaws of the current healthcare system put employers in an uncomfortable position.

"They are thinking in the back of their mind before they hire somebody: 'Is this going to be a healthy person?' " Ferreira, the chamber's vice president for government relations, told HispanicBusiness Magazine. "That factors into their decision. And we don't want employers having to go down that road."

Small businesses, he added, spend on average 18 percent more than large businesses on the same benefit plans, because the large businesses are able to essentially buy in bulk.

To bring relief to small businesses, the U.S. Hispanic Chamber advocates allowing businesses with fewer than 100 employees to band together to pool their resources in an effort to lower risk and premium payments.

Then, there is the plight of the individual. As costs continue to escalate, so too does the number of uninsured Americans, which currently stands at 46 million. Again, hardest hit are Hispanics, who, though they constitute just 15 percent of the total U.S. population, make up a full one-third of the entire uninsured population. One in four uninsured Americans are Hispanic children.

"Hispanics have the worst record in terms of the health disparity report," said Elena Rios, president and CEO of Washington, D.C.-based National Hispanic Medical Association. "We have the most to gain in terms of health reform."

Healthcare Legislation
In the nation's capital, healthcare is becoming a top hot-button issue. Recent months have seen a spate of competing bills, including ones from U.S. Sen. Ted Kennedy (D- Mass.), U.S. Sen. Max Baucus (D-Mo.) and a group of Democrats in the House of Representatives.

As of mid-June, most of the bills' major bullets point in the same direction: The three would require all individuals to obtain health insurance or face penalty taxes, and all three would significantly expand the size of Medicaid, which currently serves 60 million Americans. Two of the three bills would include a new public option, with the exception of the more Republican-friendly Baucus bill, which would instead create a nonprofit option.

Because these three pieces of legislation are all preliminary -- and subject to drastic revisions -- many business executives in the healthcare industry are reluctant to endorse one over the other. The situation is further complicated in California, where the near-bankrupt state is looking to cut funding to healthcare entities.

With California facing a historic $24 billion budget gap, statewide retrenchments are imminent.

For instance, Gov. Arnold Schwarzenegger has proposed eliminating the Healthy Families Program, taking away healthcare insurance for 942,000 low-income children not covered by Medi-Cal, which is the state's version of Medicaid.

Altamed Health Services
"I'm very concerned about the health of our healthcare system," said Castulo de la Rocha, CEO of AltaMed Health Services, the No. 1 Hispanic-run nonprofit company. "We recognize we need to tighten our belt a bit, but let's not be foolish by dismantling the safety net."

The 40-year-old AltaMed runs a network of community health centers, which provide primary and preventive care to people regardless of their income, even if they are without insurance. Nearly half of the 18 million people served by these centers are Hispanic, Mr. de la Rocha said.

Patients pay on a sliding scale, and the federal government picks up much of the tab.

In 2008 alone, AltaMed's revenues swelled 23 percent, to $109 million. This allowed the Los Angeles-based organization to open six new clinics in the Orange County and Los Angeles areas, expanding its footprint to 48 sites throughout Southern California.

Mr. de la Rocha said this growth is largely the result of not only his company's long-term planning efforts, but also the federal government.

"We saw more growth during the Bush administration than any administration prior," he told HispanicBusiness Magazine.

Indeed, between 2001 and 2006, Bush boosted federal funding for the health centers to nearly $2 billion in 2007 from a little more than $1 billion in 2001. During that time, the number of patients treated at community health centers rose by 50 percent.

Three major healthcare reform bills aim to continue this expansion. Thus far, all three propose quadrupling the number of community health centers across the country, from the current 1,100 to 4,800.

"It would really mean we would be able to provide services for somewhere in the neighborhood of 45 (million) to 50 million people," Mr. de la Rocha said.

Changes Urged

Posting the largest growth in 2008 was Long Beach, Calif.-based Molina Healthcare, a network of for-profit hospitals serving poor people with Medicaid and Medicare in 10 states, and the second-largest Hispanic-owned business in the nation. Molina saw its revenues skyrocket in one year by nearly a quarter, to $3.1 billion. This boosted the publicly traded company's standing on the Fortune 1000 list, from No. 778 a year ago to 673 today.

As for healthcare reform, Dr. Michael Siegel, the company's vice president, told HispanicBusiness Magazine that the company supports universal coverage, though he said he is wary of a health-care-for-all plan that is operated by the government.

"That could create an unfair advantage for the government," he said. "The government could dictate prices that they would pay for drugs or hospital care or outpatient care, which would be far below what any private company could dictate and negotiate. ... We think competition benefits all of us."

Source: (c) 2009. All rights reserved.

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