Interview with Randall Arlett, Managing Director of American Hospital Management Company. 14 August, 2007. Colorado, USA.

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Background:

American Hospital Management Company (AHMC) is a Panama based US company. Started in 1998, AHMC operates in 12 countries and is the largest hospital management company in the Western Hemisphere, south of the US border.

AHMC’s specialty is the administration, management, and development of world-class hospitals, providing turn-key, out-sourced administrative and management services to hospitals and health systems.  AHMC works in isolated markets where there is a scarcity of human resources and capital.

Randall D. Arlett, President, CEO and Managing Director

Interview

Hank Kearney – HK: Good afternoon Mr. Arlett. We’ve reviewed your material and looked at the markets where AHMC operates.  Since AHMC is geographically spread-out, I’d like to get some additional background information

To begin, let’s talk about the brand.  How is it the company is known as the American Hospital Management Company and Family Hospital Group of Companies?

Randall Arlett – RA: Originally two other individuals and myself started the company under the Family Hospital Group of Companies brand.  We’re transitioning to the more clearly defined brand of AHMC.  AHMC is the name we operate under to the public, government ministries, academia, etc.

HK: You and two others started the company.  What other investors have been involved

RA: The three of us started with our own seed money.  One other founder and myself are still active in the company.  Our growth has all come from the ongoing profits.  We do have some employee ownership in the form of an ESOP, a Panama version of an ESOP

HK: That’s quite an accomplishment in less than 10 years to go from start-up to the largest in the Western Hemisphere with organic growth.  Do you expect to follow that trend

RA: We are open to changes as we take on new markets.  For instance, Brazil offers good potential with a roll-up strategy.

HK: Yes, Brazil is unique within the South American health care market.  The market players and medical delivery model are set to change dramatically over the next 5 plus years.

But, let’s start with how AHMC has adapted to the market changes over the past 4-5 years.

RA: When we first entered the hospital management field in Latin America there was a large need for professional management, though few organisations were ready to pay.  Now the markets see professional management as necessary.  The majority of our growth has been in the past 4-5 years and we see it continuing.

HK: AHMC sees the rapid growth of the past 4-5 years continuing.  Ok, but where and how?

RA: There are 16,000 hospitals south of the US border alone.  We’re currently in the Middle East and are exploring Asia.  Our model, partnering with local enterprises, allows for unlimited growth.  Today we manage revenue of over $300 million USD, have nearly 5,000 employees, and operate in 12 countries.

HK: Our readers know the definition of a “hospital” in emerging markets is vastly different than a hospital in Berlin or Boston.  Is AHMC looking to manage boutique clinics with 4-10 beds performing bee pollen therapy and plastic surgery?

RA: Oh no.  We manage more than 2,300 beds with an average number of beds per hospital of 135 plus.  Our hospitals are state of the art, modern facilities often with intensive care units, emergency departments, and full diagnostic capabilities.

HK: We’ll get to the typical AHMC hospital in a few minutes.  This is important because we’re seeing a global rush of hospital development with dubious business assumptions.

But your main business is managing the hospital and providing the professional staff, both administrative and clinical.  Can you tell us about AHMC’s recruitment efforts?

RA: Recruitment is a constant for us.  30% to 40% of my time is spent on human resource issues, vetting CEOs and administrators.  We provide the administrative functions and will move executives from country to country; hospital to hospital.  But the clinical functions tend to be contained within each country, bringing in clinicians only for that hospital or that particular country.

Each country has its own licensing and training issues for doctors.  Our main efforts are to assure clinical quality, which is why we work closely with US academic organisations and spend a great deal of money on quality improvement programmes for clinicians.

HK: Nursing recruitment is a worldwide challenge.  We’ve seen where hospital companies are adding nursing colleges just to open a pipeline of recruits.  How has it been for AHMC?

RA: Yes, nurse staffing is a significant issue.  However, for us this challenge plays out in retention.  We put a lot of effort in CME (continuing medical education) and accreditation, working through a JV.

Again, in South America licensing is an issue and the region has little foreign nursing staff.  In the Middle East of course, essentially all nurses are foreign nationals.

HK:  More specific to AHMC hospitals, does AHMC install any particular clinical specialties when it takes over a hospital?

RA: No.  We don’t have targeted specialties, as each geographic region is different.  We basically provide tertiary level services supported by the local market.  Our model has proved to be successful because we focus on local needs with local partners.

HK: You mentioned many of your hospitals have emergency departments.  In any health care market this service is likely a loss-leader at best, a significant drain more likely.  How do the hospitals manage the patient load that comes in to the emergency room?

RA: Of course we must stabilize the patient first.  Then, if it is a private pay patient we will admit to our in-patient census.  If it is a government pay patient we will, very quickly, transport them to another facility.

HK: Do you provide government sponsored services?

RA: No, we’re completely private, though we do have two PPP (public private partnerships).   We do some government work through our philanthropic activities.  We are looking to add PPP contracts in new markets over the next 10 years in regions where that model is in full use.

HK: Let’s talk about AHMC facilities and core services.  Are all your facilities open and operating?

RA: All but three are open and operating.  Columbia will open in 6 months; Trinidad in 8 months, and the Kuwait facility opens in December of this year.

We are operating in Panama, Honduras with 3 hospitals, Antigua, Columbia with several, Dominican Republic, Equador, and Brazil.

HK: Does AHMC build, do turn-arounds, or simply take over hospital management from a bidding process?

RA: We essentially have two client types: 1. Where investors are looking to build and 2.  Where a 3-7 year old hospital that’s not connecting and in need of our help.

HK: AHMC touts its hospital planning services.  As I mentioned earlier, we are starting to see a global rush in hospital development, often with questionable criteria.  We commented in the April issue of the PHM Emerging Markets Healthcare Monitor on a particular $200 million hospital in the Caribbean.  Is AHMC’s hospital planning services a new independent venture?

RA: No, our hospital planning services are a means of supporting our core hospital management activities, administration and outsourced staffing. We do this (hospital planning) for our own projects and it simply supports the positive outcomes of the ongoing management of any hospital we become engaged with. 

We have a lot of experience in planning and managing sustainable private hospitals.  We take a very careful, analytical approach to planning.  Experience allows us to carefully plan for such issues as number of beds, offered services, local market regulations, a market’s clinical needs, etc.

HK: AHMC claims to be the biggest in the Western Hemisphere with the Caribbean basin as its core market.  But you’ve mentioned the Kuwait facility.  Please tell us about AHMC’s Middle East ventures

RA: Yes, the Caribbean basin is our core market.  In Brazil and the GCC (Gulf Coast Countries) our model is to enter with local partners.

The Kuwait facility is known as the Kuwait Training Centre and opens, as I mentioned, in December of this year.  We’re doing this project in partnership with a local organisation, United Holdings.  The partnership has two functions: 1. The training center will provide post graduate clinical training and the second phase of the partnership includes two hospitals: a 50 bed maternity hospital and a 150 bed general hospital, both in Kuwait City.  We did the planning and will provide the long-term hospital management.

HK: Working across multiple languages, can you tell us how AHMC has tackled the standardization of information systems, a critical part of any hospital.

RA: We’ve developed and installed our own internal reporting system independent of each hospital’s MIS.  This is a large, yet manageable issue.  Each hospital’s IT system is in the language of the location with our own system over-riding.  This allows us to monitor and manage from a system wide perspective while the individual hospitals deal with their own issues.  In medicine there is 100% variation and we need to allow the local experts to respond.

HK: Yes, it’s important to recognize medicine, and hospitals in particular, have greater variables in daily function than likely any other industry.  Here in the US we have a famous professor at a highly regarded university who promotes the need for medicine to copy the process formula of how McDonald’s cooks its potatoes.

RA: AHMC’s contracts are focused on the administration and staffing of hospitals.  We are able to capitalize on process standardization.  On the clinical side it’s very difficult.

HK: Along the lines of standardization, how does AHMC manage the procurement process?

RA: We do have a couple of regional service contracts. Surprisingly these have been difficult contracts to develop.  We have many smaller group purchasing and service contracts

HK: Why, with AHMC’s purchasing power has it been difficult to develop regional contracts?

RA: That’s a tough question.  In large part I believe its due to the axiom “all health care is local.”  Suppliers and their divisions, even at the large multi-nationals, are structured to operate independently, country to country.  There’s a lot of competition even within the same supplier.  Plus, the hospital industry in emerging markets is just now coming to recognize trans-national management and ownership.

HK: Let’s talk about hospital revenue and the ideal patient.

RA: Okay, this is fairly straightforward.  All our hospital services are essentially private pay.  Approximately 60% of hospital revenue is from insurance and the balance is self-pay.  We receive payment up front from the self-pay patients and even from some of the insurance patients.

HK: Does AHMC function as an HMO or insurance company?

RA:  No. The providers (doctors) in some markets operate their own HMO, but this is not a focus for AHMC.  However, we do support the doctors developing and owning HMOs because we believe in the long run this is positive for the hospital and levels the playing field in our negotiations with insurance companies.

Side note: HK: I think this is an important distinction with the markets AHMC operates in, particularly Brazil.  In Latin America there is a long history of the HMO style local clinics owned by physicians.  Medial Saude SA (MED13 on Bovespa) is a 20+-year-old HMO style company with several hospitals and over 900,000 members.  (Though started by 4 doctors, we think there was a significant slip-up when they listed last year and brought in management without HMO/insurance experience.)

HK: Who is the typical patient at an AHMC hospital?

RA: Again, he or she is a private patient usually from the upper 40% of the socio-economic environment.  Likely a professional and an informed consumer.  We very much target these consumers, those that view our hospitals as sources of a service and a service level for which they are willing to pay.

HK: We’re going to wrap up here soon as I’ve taken a lot of your time.  But first, we’re seeing a lot of interest in real estate, some private equity going after hospitals in developed markets and the growth of REITs in emerging markets.  Does AHMC own any real estate?

RA: We have minority interests in about 1/3 of our hospitals.  Because we view all health care as local, our model increasingly calls for local partners.  Also, real estate isn’t our core business so we look to the locale investor for their expertise.

HK: Can you tell me about AHMC’s long term plans?  I see you have an office in Cairo, a challenging healthcare market if ever there was one.

RA: Our manager for our Middle East base lives in Cairo.  An American physician, this is his choice of residence.  However, the office in Egypt will cultivate our expansion efforts in all of MENA. (Middle East and North Africa)  We’re looking at Morocco, Liberia and of course the GCC.  Also, while we’re not rushing into Asia, it certainly is on the horizon.  We expect to use our GCC market presence to grow into Asia as it is close geographically and has an extremely large expat presence in the GCC.

HK: Yes, we’re seeing some companies from Asia targeting the GCC region, both for the delivery of care and financing of healthcare.  We know this is driven from the regulatory changes in how healthcare is financed in the GCC for expats and nationals, but also reflective of the efforts to supply medical care within familiar cultural norms.

Randall, this has been a very interesting conversation.  It looks like the AHMC model has a lot of flexibility.  We’ll certainly watch AHMC’s growth and wish the best.

RA: Thank you.

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One Response to Interview with Randall Arlett, Managing Director of American Hospital Management Company. 14 August, 2007. Colorado, USA.

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