Richard Kresch is somewhat of a serial entrepreneur in the behavioral health space.
Over the past 20 years, the psychiatrist has built and sold two different companies, Heartland Health Developments and Ascend Health Corporation, which are now part of Acadia Healthcare (Nasdaq: ACHC) and Universal Health Services (NYSE: UHS), respectively.
His latest project is US HealthVest, which he founded in 2013. Kresch is president and CEO of the company, with the same corporate team he’s been working with for decades by his side in the C-suite.
US HealthVest develops psychiatric hospitals in a growing number of markets across the country, including Chicago, Atlanta, Seattle and, most recently, Indianapolis, where it just opened a facility earlier this month. The company specializes in joint venture projects with medical-surgical hospitals, as well as the acquisition of underperforming facilities.
Behavioral Health Business recently connected with Kresch to discuss US HealthVest’s recent expansion into Indianapolis, its local leadership model and its future — specifically whether the company will follow in the footsteps of its predecessors for an eventual sale.
You can find the story below, edited for length and clarity.
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BHB: Congrats on the new hospital in Indianapolis. That’s part of a strategic partnership with Hendricks Regional Health and it adds on to the hospitals you already own in the Chicago, Atlanta and Seattle areas. What ultimately led to the addition?
Kresch: We have a set of criteria we use in order to find a location for a facility. There are a number of factors that go into it, but ultimately, it boils down to the need for services. We look for locations where there’s a need for additional inpatient and day hospital services.
Indianapolis was on our list.
In our search for the right location, we were introduced to Hendrix, and it was an immediate positive experience. They didn’t really have any psychiatric services, but of course, like everyone else, they had psychiatric patients, particularly in their EDS and ambulance service.
We had a series of conversations about how to address that, and we ended up building the hospital right on the campus of their main facility. The relationship is a strategic partnership because the hospital is 100% owned by a US HealthVest subsidiary, but the operational aspects of the hospital are such that we work with Hendrix as if they were a business partner.
We work very closely with them in their EDs and doing psychiatric consultations on the inpatient services side of their hospitals. Hendricks provides the internal medicine personnel to take care of the physical medical needs of our patients, and the relationship I think will grow over the years.
This is your first location in Indianapolis, but you mentioned that the city has been on your list of target markets for a while now. I have to ask: Can you share the other locations on that list?
I cannot. Only my dog gets to know the answer to that question.
Well, he’s a lucky pup. Overall, though, it seems like growth is on the agenda. I know, de novos and acquisitions are both part of your plan. Could you provide any more details on what that growth strategy looks like?
US HealthVest is really not involved in the actual operations of any of our hospitals but maintains a sort of a general supervisory and monitoring function. Our direct involvement is really in the development of the hospitals, then we hire staff, and the staff takes over and runs it.
We are always searching for new projects.
We’ve done a few joint venture projects. For example, our Silver Oaks Behavioral Hospital is a joint venture with Silver Cross Hospital, which is a not-for-profit med-surg hospital in New Lenox, Illinois.
We like that model, and we are working currently on developing a couple of new projects along those lines. In addition to developing new hospitals, over the years, we’ve also acquired what I would call undermanaged facilities. Sometimes they’re in distress and have financial problems. Other times, they’re operating profitably, but could do better.
Over the course of the last 20 years, we’ve had about a 50-50 mix between de novo development and acquisitions.
Just to clarify: When you do a deal, it sounds like you make sure that the facility has good bones, policies and practices, then you let folks in the community take it from there. Is that correct?
Yeah. Hospitals — particularly behavioral health hospitals — have to reflect the needs of the local community. The reality is there are regional differences in how people are, what their needs are and what they prefer.
We don’t have the same on-the-ground, detailed experience or information that local people do, so that’s why — to the extent possible — we like facilities to be responsive to the areas that local hires know better than we do. We leave quite a bit of discretion to them.
You also alluded to the 20 year history of the company, but US HealthVest wasn’t technically founded until 2013. Could you tell me a little bit about the organization’s origin story and how it became the provider it is today?
The roots of the company began while I was in practice as a psychiatrist at Columbia Presbyterian in New York.
I was splitting my time between practicing and being the director of a children’s long-term care and rehabilitation facility for chronically ill kids. It was affiliated with Columbia. I spent 10 years there, and then at some point I decided that I wanted to move on and go into the private sector.
In 1992, I bought a substance abuse residential treatment center in Minnesota called Pride Institute. I also eventually developed a series of managed psychiatric units at different hospitals around the country. I think we had seven at the maximum.
That then led in 1999 to the purchase of a psychiatric hospital in Fort Lauderdale. That company grew into Heartland Health Developments, which was sold in 2004 to Psychiatric Solutions, which was the precursor company to Acadia Healthcare (Nasdaq: ACHC).
I started a new company in 2005 called Ascend Health Corporation, and we sold that to Universal Health Services in 2012.
In 2013, we began US HealthVest with a different approach than we had pursued before, with a focus on certificate-of-need states and joint venture projects with med-surg hospitals.
Now, we have one hospital that is owned by an affiliate of US HealthVest in Massachusetts. We currently have a total of nine hospitals, about 1,200 beds, 2,300 employees and some pipeline projects in the works.
Over this entire period, the core members of the corporate team have remained together — our COO, our controller, our quality head, the IT director. So while US HealthVest is a relatively new company, its core management group has been together for years.
Given the history there, do you guys have any plans to sell this company off anytime soon?
We have no immediate plans to do anything but to continue to develop. You never know what the future will bring.
We have several new hospitals that have opened over the past year or so, and so our hands are pretty full working to get them fully matured. In our experience, it usually takes three years for a hospital to become what we would consider mature, which means an occupancy of more than 80%, stabilized staff and well-established referral networks.
We’re also still working on some ongoing projects. We opened a facility — which was an expansion of an existing facility — on the campus in Waukegan, Illinois, about a year or so ago, called Lake Behavioral Hospital.
We also have construction projects to expand a facility out in the Seattle market, Smokey Point Behavioral Hospital.
So we’re pretty busy with new projects, and that’s our focus at this point.
In general, what would you say sets you apart from competitors?
One thing is the way the hospitals are organized. We try to divide up the hospital into smaller specialized units that meet the clinical needs of patients.
For instance, we found that our adult female patients do better and are more active participants in groups that are women only, so all of our hospitals treat adult male and female patients separately. The women are given the choice, and the vast majority of them choose to be in the women’s program.
We also do a number of specialty programs for military people; we have a 24-bed child inpatient unit at our Massachusetts facility, which is unique. And in areas where we have a large number of high acuity patients, we have set those hospitals up with smaller intensive care units.
As patients improve, they are moved into what we call a transitional unit, which is a unit for patients who don’t need an ICU, but also are not quite ready for a general adult unit.
We’ve talked a little bit about your business mix. What does your payer mix look like?
We have an overall average for all the hospitals but there is some significant individual variation from place to place.
Average payer mix is 40% Medicaid, 30% Managed Care, 20% Medicare and 10% others, including state programs, Tricare and self-pay.
What goals do you have for the company in 2021 and beyond, growth-related or otherwise?
There’s still a strong need for behavioral health services.
We’ve never had the desire to become a huge company. We grow at a measured pace, and we only take on projects that we feel we have the bandwidth to control and manage even the smallest details of.
We like what we do, and we’re just going to continue doing it.
