$1 billion+ payday for ex-Jefferson doc's firm

Giant health insurer United Health Group spent over $1.2 billion in its deal, announced Aug. 4, to buy Newtown Square-based Executive Health Resources, which advises hospitals on how to get the most money from Medicare and other government programs, from Andrew Banks' and Royce Yudkoff's ABRY Partners, Boston, and other investors, according to an estimate by JPMorgan analysts John Rex and Scott Hansen in a report to clients.

The sales price works out to at least 12 times Executive Health's gross profits of more than $100 million a year, according to JPMorgan. Executive Health will be rolled into United Health's Ingenix data unit.

Executive Health won't comment on how much of that money will go to Executive Health founder Dr. Robert Corrato and his insider colleagues. ABRY's investors, who will presumably share profits from the deal with its high-paid managers, include the underfunded Pennsylvania State Employees' Retirement System. ABRY partner Hilary Grove didn't return a call seeking comment.

Corrato, who holds degrees from the University of Pennsylvania's medical and business schools, started Executive Health in 1997 after leaving an executive job at Thomas Jefferson University in Philadelphia. He was unavailable for comment, said Executive Health spokeswoman Michele Bowman.

Executive Health employs around 1,000 nationally at its Newtown Square headquarters and offices in Maryland and California. Rex and Hansen estimate the company employs 300 doctors on its staff "that essentially serve on a consulting basis" helping hospitals figure out how to treat "medically complex" patients so as to get the biggest taxpayer subsidies without violating federal law. "Hospitals are required to perform these reviews to get paid" by Medicare and Medicaid, and Executive Health "is a low-cost, seeingly effective way for hospitals to meet this requirement," they added.

"The reason it's worth a billion dollars is that the money at risk here is like 30 times that large," from yearly Medicare reimbursements to hospitals, said Jerry Katz, a hospital consultant in the Philadelphia-area office of Atlanta-based Kurt Salmon Associates. Insurers use data from past patients to calculate guidelines for taxpayer-subsidized hospital reimbursements, he said. "It's like the fox guarding the henhouse. There's big stakes here. Lots of money involved."

Executive Health's "very large and growing database of information on especially compex conditions (is) what makes the intellectual property of the company unique" and worth more than $1 billion, the JPMorgan analysts wrote in their report.

There's "definitely" a conflict of interest between United Health's role as a for-profit insurer that pays hospital claims, and the role of Executive Health and other businesses it has acquired as hospital reimbursement advisers, the analysts concluded. "The bigger the effort becomes, the greater the tension becomes." United Health didn't return calls seeking comment.