Yes, he's the chief executive of a for-profit health company, but George V. Hager Jr. really doesn't understand why people have such strong objections to a health care company turning a profit.
"There is no question that there is a natural bias -- especially from people who are in the regulatory and oversight parts of the health system -- against for-profit health care," said Hager, who leads Genesis HealthCare Inc.
The Kennett Square company is one of the nation's largest providers of post-acute care as in rehab facilities and nursing homes. Genesis, which employs 90,000 people, also staffs and operates rehab facilities in 1,700 locations, including its most of the 500 facilities it operates in 34 (soon to be 29) states.
"I think people say, Why should anyone make money providing health care to people?'" Hager asked rhetorically, during our Executive Q&A published in Sunday's Philadelphia Inquirer.
Von Bergen: OK, I'll bite. Why should they?
Hager: My perspective is the difference between for-profit health care and nonprofit health care is not that both need to make money, it's just where they access the capital that they need to operate the business. So a nonprofit hospital would access the tax-exempt bond market. The hospital has to make enough money to pay the interest and the principle back on the bonds, that you or I might have invested in. What's the difference between that and me going to the stock market and asking you to buy a share of Genesis stock and I take that money and build this building and provide wonderful care. You should expect me to make enough money to allow you to sell your share, hopefully, at a gain,
Von Bergen: So you are saying the gain between the share buying price and the selling price is similar to interest in the bond.
Hager: Exactly. It's just how you access your capital, because health care by its nature [costs money]. This building cost almost $30 million to build. It's expensive and when people invest in that, they expect to get repaid.
Von Bergen: Aren't salaries a lot different in nonprofit and for-profit. Isn't there an expectation that salaries in for-profit companies are going to be higher all across the board?
Hager: I don't have command of all the facts, but I'd actually argue to the contrary. I think that because nonprofits don't have the ability to offer an incentive in stock, they have to offer other things -- higher base levels of compensation, higher levels of incentive compensation, higher levels of retirement benefits. If I get a stock option and the stock goes up, that didn't cost the investor anything, because the investor is investing right along with me.
Next: Genesis expands into China.