Johnstown Heights: New owner, new name; new CEO — and another sale could be next

JOHNSTOWN — If mental health involves fresh starts, Johnstown Heights Behavioral Health is taking the counsel to heart.

Everything new there could soon be new again, just four months after the psychiatric hospital and mental health facility reopened after its crystal clean inspection from Colorado Department of Public Health and Environment examiners.

Its future looks good; the building’s recent past wasn’t so bright.

A previous iteration, Clear View Behavioral Health, under a different owner-operator wasn’t so good. It closed last September after four years of site visits that produced 85 CDPHE citations, as well as at least two lawsuits, which continue against the former facility.

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Franklin, Tennessee-based Summit Behavioral Healthcare LLC bought the property for $29.25 million in December. It changed the hospital’s name and nailed the floor program with public health judges in April. In May, it opened to private payers to establish a baseline of care to sign-on with Medicare and Medicaid.

July 26 it opened to anyone in need.

The new owners assert nearly nothing isn’t new there. Or as they said this summer: all of it is.

It didn’t just reopen, Daniel Krasner, Summit BHC executive vice president of business development told BizWest in July. “It’s a new operation.” No doctors from the previous operators remain, he said.

“We purchased an empty building,” he said. “We have the right staff in place, and good leadership.”

Almost. At press time Summit hadn’t yet said who would run the operations in Johnstown, the company’s second site in the state. It bought Peak View Behavioral Health in Colorado Springs in January 2020.

Another wrinkle: Summit itself might be for sale.

New Guys

The company is relatively young, forming in 2013. Chicago-based Flexpoint Ford LLC and others bought control two years later and grew it to about a dozen hospitals by 2017. Summit sold itself to private equity firms Lee Equity Partners in New York and San Francisco-based FFL Partners.

Lee invests $50 million to $100 million for controlling stakes; FFL buys firms with $30 million to $400 million in revenue and valuations of up to $300 million. The two own equal shares of Summit.

A July report in M&A watcher PE Hub, part of a London-based media group, said the pair is shopping Summit via two investment banking advisers, Moelis and Jefferies. The former assisted the partners on their original acquisition from Flexpoint Ford.

PE Hub said Summit’s 2021 EBITDA should approach $90 million, up 20% from its current run rate.

Summit has grown to 24 hospitals — a mere pup in the world of private equity roll-ups of such facilities.

The chain’s senior executive team includes several members who have participated in the deal-making, including chief executive Brent Turner, president Jon O’Shaughnessy, and chief financial officer Chuck Edwards. The trio have several decades apiece in turning around or growing behavioral health hospitals into chains big enough for notable paydays.

Their resumes include Acadia Healthcare Co. Inc. (Nasdaq: ACHC), a $6 billion (market cap) system of 225 locations and 10,000 beds, and the former Psychiatric Solutions Inc., with 100 facilities and 11,000. The previously public PSI was headed for a Boston-based Bain Capital buyout last year when it was sold instead for $3.1 billion to Pennsylvania-based Universal Health Services Inc. (NYSE: UHS), a $13 billion (market cap) system with about 400 facilities and 30,000 beds.

PSI, Acadia, and Summit are or were in Franklin, and Turner and O’Shaughnessy have put in time at each.

Forbes wrote of ongoing private equity interest in behavioral health since at least 2017. Industry journal Behavioral Health Business reiterated the trend in January of this year. KKR & Co. Inc. (NYSE: KKR) in June created a mental health business group and invested in Chicago-based clinic operator Geode Health.

Colorado looks to be a place these private equity-based hospital systems will be shopping.

A report in August from the state’s Department of Health Care Policy & Financing said 2018 data, the latest available, shows hospitals in the state were first in the U.S. in profit margin, at 15.6%. Colorado per-patient profit of about $2,900 was three times higher than the median and totaled $2.9 billion.

Urban hospitals had enough cash reserves to operate for about eight months without revenue. As of April 2020 hospitals in the state had received $1 billion in non-repayable federal aid. Including stimulus money, all hospital systems in the state, entities with at least three facilities, recorded operating profits in 2020.

Bad Strategy

Clear View and its former owner haven’t seen the same results.

State and federal citations run from August 2016 through June 2020. Both kinds are handled by CDPHE, a spokesperson said. Violations involve admissions, evaluations, drug administration, patient discharges, and include allegations of sexual abuse.

Those named on inspections include SBH-North Denver LLC, the licensee; three administrators or chief executives: Daniel Zarecky, Sharon Pendlebury, and James Shaheen; three other officers; and at least six family trusts as stockholders.

Facility websites and LinkedIn said Zarecky is chief executive of Lancaster Behavioral Health Hospital in Pennsylvania; Pendlebury worked for the Banner facilities in Northern Colorado and in May became chief executive of South Texas Health System Behavioral in Edinburg, Texas; and Shaheen opened a family investment company in Germantown, Tennessee.

Some also appear on the lawsuits, filed by Denver attorney Jerome Reinan on behalf of Angelo Scolari, in Larimer County District Court in December 2019, and Lisa Sun in Boulder County District Court in January 2020.

The two suits read largely similarly, with allegations by employees, therapists, administrators, and nurses, and patients and their families of unethical behavior in several states by Clear View’s owner. The lawsuits allege fraudulent billing and coercion related to paying for care; illegal detention; short-staffing, and other improper working conditions.

Suits are ongoing, Jordana Gingrass, an attorney in Reinan’s office, said by email.

Denver ABC affiliate KMGH investigated Clear View for two years until it lost its license and closed for good.

Clear View’s former owner, Strategic Behavioral Health LLC in Memphis, also tried to build a chain of mental health hospitals. SBH was founded about 15 years ago and backed by the family office of an ex-auto dealership magnate, Dobbs Management Service LLC, also in Memphis.

Dobbs still exists but it’s unclear if Strategic does.

The Dobbs website said by 2013 Strategic had $83 million in revenue, facilities in the double digits, and a growth trajectory. SBH’s website doesn’t list any sites and no new press releases since 2018.

James Shaheen’s investment company website and LinkedIn profile lists him as founder and president of SBH, through 2019.

The SBH site currently shows Mike Orians as chief executive and Blair Stam as president. Voicemail left for, according to its greeting, “the executive assistant to the president and CEO” wasn’t returned. Email to James Cagle, listed as chief financial officer on the website, bounced.

Media reports show SBH facilities recently sanctioned in five states; a Nevada facility closed last year.

Cool Running

Before even self-pay clients, the rechristened Johnstown Heights got the one thing it couldn’t do without: a clean bill of health from the state. CDPHE records show it gave initial licensure to the 92-bed facility in April.

No citations are listed. A department spokesperson said this means “no deficiencies” because even a new facility, one with neither patients nor operations nor income to that point, could be cited before opening.

The LLC of the same name that according to the secretary of state owns the facility, launched in Colorado a month before its Tennessee parent bought the building; it registered the trade name two weeks before its public health department OK.

One thing the Johnstown hospital needed as of late August is a chief executive.

Former Johnstown Heights CEO Scott Snodgrass left in August after four months for the same role at Centennial Peaks Hospital in Louisville. Centennial is owned by UHS, last year’s buyer of Turner and O’Shaughnessy alma mater PSI.

Johnstown Heights interim CEO Brian Gill also lists the CEO slot at Diane Grace Consulting in Dallas, and a recent two-year CEO stint at mental health facility Millwood Hospital in Arlington, Texas, on his LinkedIn page.

A job board posting this summer sought a chief executive for Johnstown Heights, offering a salary of $180,000 to $225,000, the ad said.

Summit BHC in Franklin has one other arm’s-length — Summit would say broken — link to Strategic BHC in Memphis beyond the acquisition of the Johnstown facility. Jerome Reinan’s lawsuit names its 112-bed Colorado Springs hospital, Peak View, as being once owned, as of 2016, by Strategic.

Summit said in a January 2020 press release it bought the facility, without naming a seller. Colorado secretary of state filings show SBH Colorado LLC organizing in 2008, adding trade name registration in 2019. The address on the 2008 filing is Summit’s in Franklin.

CDPHE citations show the same entity has owned Peak View, and the administrator on the records, Diane Crumb, is listed on Peak View’s current website as well. The role sometimes handles regulatory and other compliance matters. Peak View chief executive Ty Meredith is quoted in Summit’s January 2020 press release on the purchase. Taline Meredith is listed as Johnstown Heights’ administrator; Taline “Ty” Meredith’s LinkedIn profile shows her current role as Peak View CEO and a nine-year stint with Strategic BHC.

The Colorado Springs facility had 15 citations on 10 inspections in 2017, declining steadily to one citation on one inspection last year, on April 1.