Concentra Inc.

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Concentra Inc.

5080 Spectrum Drive, Suite 400W
Addison, Texas 75001
U.S.A.
Telephone: (972) 364-8000
Fax: (972) 387-1938
Web site: http://www.concentra.com

Private Company
Incorporated: 1997
Employees: 10,000
Sales: $1.1 billion (2004)
NAIC: 561110 Office Administrative Services

Addison, Texas-based Concentra Inc. is a leading provider of outsourced, specialized cost management services in four markets: workers' compensation, occupational health, group health, and auto liability. The company's goal is to save on healthcare costs while improving patient recovery. The privately owned company maintains a national network of occupational healthcare centers to serve more than 136,000 employer locations as well as insurance companies, group health plans, and other healthcare payers. Concentra's operations are divided among three business segments. The Health segment provides physical therapy and other treatments for work-related injuries and illnesses from 264 centers located across the country. It also provides pharmacy services and drug and alcohol testing. Concentra's care management services handles extended cases, arranging for independent medical examinations and providing case management in order to review and resolve more difficult cases. The network services segment helps to control customer costs by negotiating lower fees and reviewing medical bills for possible repricing. Concentra is majority owned by New York City investment firm Welsh, Carson, Anderson & Stowe.

Concentra's Roots Dating to the Late 1970s

Although Concentra resulted from a number of mergers, the company's corporate lineage is that of OccuSystems Inc., founded by Dr. Richard Rehm in Amarillo, Texas, in 1979. Rehm grew up relatively poor in rural Minnesota, and as a teenager spent his summers working as a straw boss for his grandparents, old-time carnies. According to a Dallas Business Journal profile, "Whatever tasks came up each week—dictated by whatever carnie was in jail in that particular town during that particular week—Rehm got the job." In addition to his training in the school of hard knocks, Rehm did well scholastically, becoming a favorite of his Catholic school teachers, and urged by the nuns to become a priest. But Rehm opted for a path perched somewhere between huckster and clergyman, deciding to become a doctor. Rehm received an undergraduate degree from the University of North Dakota and earned a Doctor of Medicine degree from the University of Texas. He returned to Minnesota to complete his Family Practice Residency training at the University of Minnesota, and then moved to remote Buffalo, Wyoming. For three years he practiced family medicine, as one of just two physicians to cover an area 4,000 square miles in size. Then in 1979, Rehm relocated his family to Amarillo, to open an occupational medicine practice in an area that was underserved and that he felt presented an opportunity. As Rehm explained to Dallas Business Journal, "It was a $100 billion segment of medicine that nobody paid attention to.… I wanted to build a better mousetrap in this segment of health care that not only needed quality medicine, but also a more efficient business system applied to it."

Rehm proved to be equally proficient as an administrator, taking an approach that at first glance was counterintuitive. "While other facilities were trying to maximize the dollar volume per patient, we were trying to minimize the dollar volume per patient," he told Dallas Business Journal. Rehm's clinic succeeded in treating patients and getting them back to work quickly, thus saving employers money and allowing Rehm to reap the financial benefits of handling a large caseload. His business also got a boost from a six-year association with a weekly television health program that was syndicated on ABC affiliates in seven states. Although he discussed general health topics rather than occupational rehabilitation, and did not use the series to directly promote his clinic, he greatly benefited from the exposure.

With his clinic well established in Amarillo, Rehm was urged in 1985 by a group of insurers and employers to open aDallas-area clinic. After establishing a practice in the suburb of Garland, he expanded his presence in the market by acquiring a practice and hiring a physician to run it. Other acquisitions followed, so that by 1990 Rehm was operating four clinics. He was now at a watershed moment, realizing that with the healthcare field undergoing consolidation it was only a matter of time before he was "overrun by a big player," and if he wanted to maintain his independence and medical standards, he would have to become a big player himself.

Hiring a Veteran Executive in 1990

In 1990 Rehm hired John K. Carlyle, a seasoned executive in the medical field, to serve as chief executive officer and raise money to fuel expansion for Rehm's business, which took the OccuSystems name in 1990. A certified public accountant, Carlyle had spent the previous six years serving as chief financial officer of Medical Care International, the largest operator of outpatient surgery clinics in the United States. Carlyle tapped venture capitalists Welsh, Carson, Anderson & Stowe and the Sprout Group for $35 million in seed money and starting in 1991 OccuSystems began gobbling up clinics across the country. Less than two years later the company was operating about 50 clinics in seven states. In 1992 OccuSystems entered the Corpus Christi, San Antonio, Milwaukee, and Des Moines markets, as well as adding another Amarillo clinic. A year later it added Denver, Detroit, Albuquerque, and Santa Fe. Revenues during this period grew from $7.8 million in 1991 to $15 million in 1992 and $47 million in 1993.

In May 1994 OccuSystems Inc. was incorporated in Delaware in a preliminary step to taking the company public. The offering was put off for several months, during which time OccuSystems continued to expand, adding several more markets: Tucson, Reno-Carson City, Oklahoma City, Houston, Waco, and York, Pennsylvania. To help fund this growth while waiting for an opportune moment to make a public offering of stock, OccuSystems sold an 18 percent stake to Travelers Inc. for $15 million. Travelers also spent another $7.8 million to acquire stock from OccuSystems shareholders. Moreover, OccuSystems and Travelers forged a working alliance, agreeing to work together to develop occupational health centers, acquire existing ones, share information, and help develop workers' compensation insurance products. When the offering was finally completed in 1995, OccuSystems raised another $68.7 million.

OccuSystems continued to expand at a steady clip in 1995 and 1996. Early in 1995 the company expanded its presence in the Arizona market by acquiring Occupational Medical Centers, adding eight facilities in Phoenix, as well as a center in Honolulu. OccuSystems also opened a center in Flagstaff, Arizona, in 1995. Later in the year the company acquired Fort Worth-based Advanced Occupational Health Care and three occupational health centers in Fort Worth and one in Grand Prairie, Texas. Another important development in 1995 was the establishment of the company's first hospital affiliation, with Detroit-based Henry Ford Health System. According to the arrangement between the two parties, the 13 OccuSystems clinics in the Detroit area referred patients to Henry Ford for inpatient and ancillary care, and both organizations would work together to use outcomes in developing best practices. In the next year, similar arrangements were forged with El Dorado Hospital and Medical Center in Tucson and Integris Health in Oklahoma City. Further additions to OccuSystems' chain of clinics in 1996 included Colorado Springs, New Jersey, Tulsa, and Austin. By early 1997, OccuSystems operated 110 centers in 16 states, employing nearly 200 physicians.

OccuSystems Merging with CRA in 1997

Another major turning point in the company's history was reached in April 1997 when OccuSystems agreed to merge with a company of similar size, CRA Managed Care Inc. Instead of OccuSystems' physician network, CRA took a managed-care approach to providing cost containment and case-management services for employees injured or made ill on the job. Based in Boston, CRA was incorporated in 1978 as Comprehensive Rehabilitation Associates, Inc. and enjoyed exceptional growth in the early 1990s, expanding to more than 100 field case-management offices, leading to an initial public offering in 1995, at which point it assumed the CRA Managed Care name. The year before its merger with OccuSystems, CRA posted revenues of $179.7 million and net income of $10.1 million, while OccuSystems cleared $11 million on $170 million in revenues.

The combined company now did business as Concentra Managed Care Inc., a subsidiary of parent company Concentra Inc., an industry powerhouse able to offer one-stop shopping for workers' compensation services, with operations in 49 states, the District of Columbia, and Canada. At this stage Rehm retired, but soon turned his attention to a healthcare start-up called TotalMed, an online medical transcription company. Carlyle, in the meantime, became Concentra's chairman, while CRA's chief executive, Donald Larson, became Concentra's CEO. The former president and chief operating officer of OccuSystems, Dan Thomas, assumed the same positions at Concentra.

In June Concentra added an important component to its business with the acquisitions of First Notice Systems Inc., a Boston-based provider of outsourced call reporting to handle initial workers' compensation and automobile insurance claims. Speedy notification, reporting injuries within 24 hours, was a key factor in reducing medical costs and getting workers back on the job more quickly. Moreover, Concentra would be able to use the injury data captured at the beginning of a case episode to supplement its database of outcome-related information to improve the company's services across the board. Early in 1998 Concentra completed another important acquisition to flesh out its business, buying Preferred Payment Systems, a Naperville, Illinois company specializing in bill review services.

Company Perspectives:

Concentra's mission is to create and deliver healthcare solutions, patient and claimant outcomes, and business results that make our clients more successful.

For 1997 Concentra reported revenues of nearly $459 million, a 31 percent increase over the combined totals of OccuSystems and CRA in 1996, and net income of $31.9 million, a 51 percent improvement over the prior year. Although on the surface Concentra appeared to be off to a solid start, the company was having difficulty integrating its service offerings and fell short of financial expectations, leading to Larson's resignation in September 1998. He was replaced as CEO on an interim basis by Thomas, who was named his permanent replacement several weeks later. After receiving some unsolicited interest in acquiring a major portion, if not all, of the company's stock, Concentra's board engaged a firm to help sort through strategic alternatives. In March 1999 the company agreed to be taken private by Yankee Acquisition Corp., an entity created by Welsh, Carson, Anderson & Stowe for the purpose. The $1.1 billion deal was completed in August, with Welsh, Carson increasing its stake in Concentra from 14.9 percent to approximately 93 percent. Concentra now had the backing of a deep-pocketed parent to help it align its different business segments. An important step in this direction was the formation of a centralized corporate marketing group. The company ended the year reporting a 12 percent increase in revenues to $681 million, and $105 million in earnings before taxes and other costs.

The year 2000 would see the upward trend continue for Concentra. The Health Services business performed especially well and was boosted by the acquisition of eight Atlanta-area occupational medicine centers from Select Medical Corporation. Improvements to systems and infrastructure helped Network Services also to perform well in 2000, while Care Management Services rebounded from a poor 1999 to post acceptable results. All told, in 2000 Concentra experienced a 10 percent increase in revenues over the prior year to $752 million, and pretax earnings of $119 million, a 13 percent increase.

Although the U.S. economy struggled in 2001, Concentra was able to maintain its steady march toward becoming a $1 billion company, recording revenues of $857 million and pretax income of $131 million. By year-end the number of centers the company operated reached 233. Aside from a number of internal initiatives (reorganizing the sales force and upgrading information technology), Concentra also completed a significant acquisition in November 2001, picking up National Healthcare Resources, Inc. (NHR), a Woodbury, New York-based medical consulting company to the automobile insurance and workers compensation industries. NHR was another company that Welsh, Carson had funded. The two companies complemented one another, with NHR having done well by serving middle market and regional clients and possessing a solid footprint in auto managed care services. As a result, Concentra was strengthened throughout its business segments.

Concentra all but reached $1 billion in revenues in 2002, recording slightly more than $999 million in sales, but it also posted a net loss of $9.6 million. The company took steps in the fall of 2002 to reduce costs, allowing it to pay dividends the following year. In addition, Concentra looked to maintain its growth by acquiring two more Welsh, Carson companies: Em3 Inc., a provider of web content management products, and OccMed Services, developers of a web-based integrated prevention and injury management product. Concentra finally topped the $1 billion mark in 2003 to $1.05 billion, a modest increase over 2002, but the cost containment measures resulted in the company posting net income of $43.3 million. Concentra lost some ground in 2004, due to a number of factors, such as a shortage of flu vaccine and a change in California's workers' compensation fee schedule. For the year 2004, revenues improved to $1.2 billion and Concentra posted a net loss of nearly $10 million. In spite of these short-term problems, Concentra continued to grow and appeared well positioned to enjoy long-term success.

Principal Operating Units

Health Services; Network Services; Care Management.

Principal Competitors

CorVel Corporation; Intracorp; UnumProvident Corporation.

Key Dates:

1979:: Dr. Richard Rehm launches an occupational medicine clinic in Amarillo, Texas.
1985:: Rehm opens a second clinic in Dallas.
1990:: Rehm forms OccuSystems Inc.
1995:: OccuSystems is taken public.
1997:: OccuSystems and CRA Managed Care merge to form Concentra Inc.
1999:: Concentra is taken private.
2003:: Concentra tops $1 billion in revenues.