Two in­vestors exit PHNS

One sys­tem to be share­holder in new owner

Modern Healthcare - - The Week In Healthcare - Joseph Conn

Two hos­pi­tal or­ga­ni­za­tions have cashed out of their in­vest­ments in PHNS, a Dal­las-based in­for­ma­tion technology out­sourc­ing com­pany, while a hos­pi­tal sys­tem that was an early in­vestor also re­ceived cash but rolled over some of its eq­uity into the ac­quir­ing com­pany.

ConJoin Group, an IT and busi­ness-process out­sourc­ing com­pany with of­fices in Mum­bai, In­dia, Bos­ton and Toronto, an­nounced last week that it had pur­chased PHNS for $250 mil­lion. PHNS was co-founded in 1999 and quickly formed al­liances with three “cor­po­rate part­ner” hos­pi­tal or­ga­ni­za­tions. The first, in Jan­uary 2000, was McLaren Health Care, Flint, Mich.; fol­lowed by Gen­eral Health Sys­tem, Ba­ton Rouge, La.; and later by Ad­ven­tist Health­Care, Rockville, Md.

All three sold their IT de­part­ments to the startup com­pany, then known as Provider HealthNet Ser­vices, which in ef­fect bought its ini­tial hos­pi­tal clients by of­fer­ing cash and stock in re­turn for tak­ing over their IT de­part­ments and en­ter­ing into long-term IT ser­vice con­tracts with them.

As a startup, the new com­pany traded a piece of it­self to quickly ob­tain the in­tan­gi­ble as­set of vis­i­bil­ity in the mar­ket as well as hard as­sets of equip­ment and a fu­ture stream of in­come, com­pany co-founder Rick Kneip­per said. “You need to have a breadth of cus­tomers, so in a very short pe­riod of time, we were up and run­ning a $100 mil­lion busi­ness with three hos­pi­tals sys­tems and a lot of cred­i­bil­ity,” he said.

By 2006, PHNS an­nounced it had made a to­tal of $95.5 mil­lion in an­nual cash pay­ments to “hos­pi­tal part­ners” as their share of costs sav­ings pro­duced by the com­pany in the first six years of their re­la­tion­ship. At the time, PHNS said the three hos­pi­tal or­ga­ni­za­tions owned 20% of its stock and held 40% of the seats on its board. Kneip­per, who pre­vi­ously served as chief ad­min­is­tra­tive of­fi­cer of PHNS, will re­main on the board and be­come chief strat­egy of­fi­cer for the new com­pany.

Kneip­per said PHNS paid cash to all three of its ini­tial hos­pi­tal in­vestors as part of the sale, but de­clined to spec­ify the amounts. A Gen­eral Health Sys­tem spokes­woman de­clined to com­ment on its pay­out.

An Ad­ven­tist Health­Care spokesman said in an e-mail that the sys­tem owned less than a 2% in­ter­est in PHNS stock. “Our shares were re­deemed in cash” in a trans­ac­tion that “had no sig­nif­i­cant im­pact” on the sys­tem’s fi­nances, and that Ad­ven­tist will be a ConJoin cus­tomer.

Kevin Tomp­kins, a spokesman for the seven-hos­pi­tal McLaren sys­tem, said it “will con­tinue to be a large share­holder in the new com­pany, ConJoin. It will be less than a ma­jor­ity but it will be in the dou­ble dig­its.” Tomp­kins said, “The fi­nal nuts and bolts are still be­ing worked out, but we are ex­tremely pleased with our in­vest­ments in PHNS.”

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