November 2017

The situation Last week (15 Nov 2017), David Bassin (Healogics’ former CFO), was appointed as the company’s new CEO. As the world’s biggest wound management firm and provider of wound services, Healogics has both a massive network and a huge volume of wound care and outcomes data. Understandably, healthcare executives, analysts, and investors watching this space have been very eager to know about what this and other recent developments mean for the future of wound care. This is similar to how major moves by Boeing would be of interest to those working and investing in the aviation industry. Stakeholders know that change at Healogics, and other wound services firms to some extent, leads to new opportunities. At the same time, it can also expose their business models to new vulnerabilities. Since leaving Healogics to focus on Diligence Wound Care Global, dozens of clients have turned to us specifically seeking to better grasp strategies and initiatives related to wound management firms (how to react, or what to avoid). From investors and bankers, to startups, to product executives, to healthcare facilities–and to even payers and other wound care services firms–all realize that without understanding how Healogics and other wound management firms prioritize and make decisions and especially how that might affect their short term tactics as well as long term planning, they may be caught off guard. Bassin is taking the helm during a challenging and unique period in the company’s history: Healogics’ traditional business model is under massive pressure in recent months. Many facilities whose wound programs partnered with Healogics (or its pre-acquisition predecessors) to launch wound care programs five, ten, or even twenty years ago have recently chosen to not renew their wound management contracts due to cost-cutting and other pressures. While a normal churn of contracts won and lost has always been part of the business, Healogics has recently lost significantly more contracts than it has gained–the first major contraction in the history of a company which was otherwise characterized by impressive growth for most of the past decade. Today, US healthcare facilities have more options than ever for outsourced wound care management–from clinical training and certifications, to clinical-operational flow consulting, to revenue cycle management, to wound care service line marketing, to EHR vendors and mobile health–offering à la carte options in addition to the full-service management approach on which companies like Healogics, Restorix, and others have traditionally focused. Many–perhaps most–hospitals that do not renew their Healogics wound center management contracts are actually content with the overall services provided. But the ability to, with the stroke of a pen (or more precisely, the lack thereof), cut an annual expense amounting to hundreds of thousands of dollars becomes easier when there are multiple firms that will fulfill specific wound management needs on an à la carte basis. For most US hospitals who are struggling to squeeze even a one or two percent operating margin, the potential savings are material and quite tempting. At the same time, let’s not discount that Healogics managed nearly half of the hospital-affiliated outpatient wound care centers–though that number is now closer to one third. Centers run by management companies tend to have higher patient volumes and better healing outcomes than their independently managed peers, so it’s quite reasonable that close to 50% of US patients treated in specialized, outpatient hospital-affiliated wound centers are seen in a Healogics facility. Healogics also has a relatively small but potentially growing influence in the inpatient, skilled nursing facility (SNF), and related landscapes. Perhaps the most significant asset that Healogics has is its healing data. While the à la carte solutions can help solve certain problems, not a single one of them has the A-to-Z depth and quantity of clinical, operational, and financial data that Healogics does. This is important to keep in mind when considering the future dynamics of Healogics, its wound care services/management competitors, and the industry overall. On the other hand, there exist other players with fewer data points but claiming more precise and actionable data such as automated wound measurements. So although the title of “best wound care data set” is yet to be claimed, Healogics is surely a top contender.   The Past: A Brief History of Healogics from 2006 to Today In 2006, Diversified Clinical Services was born, becoming the largest wound management company following the merger of three smaller firms: Diversified Therapy, Curative, and Praxis Clinical Services. With over 260 hospitals under management, the newly integrated firm had a presence in around 40 US states. When I joined the company as a wound care center director in early 2011, the Jacksonville, Florida-based company had somewhere around 400 centers under management and was considered one of the fastest growing healthcare services firms in the US at the time. The growth plan was quite clear: Due to factors such as aging populations, rise in chronic disease, and related lifestyle problems, patients will continue to develop wounds that need advanced treatment. Particularly with all of the baby boomers retiring, the business outlook was strong as long as they were served. Many even believed that within a few years, virtually every hospital in the US would have some sort of formal wound care program. For the most part, they were right. Although the number of difficult-to-heal wounds in the US has skyrocketed to between 6-7 million, the majority are still not treated in a specialized, outpatient wound care center. The opportunity for growth was substantial back then, and still is today. The following infographic, produced by Healogics (and which is consistent with what I have seen working with the industry from other angles, too) visualizes this breakdown: Another merger with major competitor National Healing Corporation in 2011, and rebranding as Healogics, Inc. in 2012 brought the total to “more than 500 centers” and close to $300M in annual revenue when large private equity player CD&R purchased the firm from Metalmark (another PE firm that had owned it for a few years) in mid-2014 for $910M. By this point, Healogics centers were treating over 200,000 wounds