THE WALL STREET TRANSCRIPT

 

Questioning Market Leaders For Long Term Investors


CHRISTOPHER T. FEY - U.S. PREVENTIVE MEDICINE, INC.
CEO Interview - published 11/05/2007

CHRISTOPHER T. FEY is the Founder, Chairman and Chief Executive Officer of U.S. 
Preventive Medicine, Inc. Mr. Fey has been involved in the healthcare industry 
for more than three decades. As the Founder, President, and CEO of HealthCare 
USA — launched as a startup, with $3.6 million in venture capital — Mr. Fey 
assembled and led the team that built HealthCare USA into a profitable, multi-
state licensed HMO that was acquired within two years by publicly held Coventry 
Health Care Corporation at a price of $45.3 million. Mr. Fey remained as 
President and CEO of HealthCare USA, as well as a senior officer with Coventry 
until he resigned to launch a direct-to-consumer diagnostic company, 
HealthScreen International, Inc., and HealthScreen America. Small Business 
Computing magazine ranked this company one of the most innovative technology 
businesses in 2000. The company was also one of 12 runners-up in the prestigious 
USA Today/Rochester Institute of Technology Quality Cup the following year. 
Other runners up included Master Card and AT&T. Mr. Fey launched U.S. Preventive 
Medicine, determined to create the leader in the growing field of prevention, 
wellness, and healthy aging through the internal development and/or acquisition 
of accretive business models in this space. Mr. Fey is a member of the American 
College of Health Care Executives, American Hospital Association, Disease 
Management Association of America, and the Society for Atherosclerosis Imaging. 
He is a graduate of the University of Florida.

SECTOR - HEALTH SERVICES

TWST: We'd like to begin with a brief historical sketch of the company and the rationale for your business proposition. Mr. Fey: The business rationale for U.S. Preventive Medicine® goes back to the old adage, find a problem, develop a solution, fix the problem. The problem is our "sick care focused" healthcare system. Annual health care spending in the US is approaching $3 trillion and is expected to double in the next 10 years. More importantly, it is estimated that more than 95% of these expenditures are focused on sickness. As a result, needless suffering and premature death have become everyday occurrences in our families, our companies and our communities. On the other hand prevention has been proclaimed as the solution to our health care crisis. A recent study indicated that we could save $1 trillion through the use of early detection and chronic disease management or secondary prevention. Growing evidence suggests that prevention is the solution. We agree that prevention is the solution. We also recognize that the clinical discipline of prevention is preventive medicine. U.S. Preventive Medicine was formed specifically to be the leader in the prevention category. Consequently, our goal is to turn U.S. Preventive Medicine into the next power brand in one of the world's largest industries, health care. In creating U.S. Preventive Medicine as the new power brand in health care and the distinct leader in prevention, we are focused on growing four integrated business units: building a national system of Centers for Preventive Medicine; launching a comprehensive defined health benefit, The Prevention Plan™; expanding the company's chronic condition and disease management unit, U.S. Care Management™; and, in select markets, launching integrated health plans focused on prevention. Finally, we will link all components into a new national network, the U.S. Prevention Network™. TWST: Was there a driving reason to start this company, beyond the opportunity to provide a solution for our country's health care crisis? Mr. Fey: My father died three days after my first birthday. I had just turned a year old and he died; he died of colon cancer. I never knew him; I have no memory of my father whatsoever and that was a tragedy. Today this is still happening to people throughout the United States where their parents, family members and business associates are being taken away from them at a very early age. My brother-in-law at 39 years old had a massive stroke standing next to me. Can you imagine — a massive stroke, 39 years old; he survived, but he'll never be the same. After a couple of life changing events happen to you, whether you are a year old or whether it's your 39-year old brother-in-law, you step back and you say, "Is there something I could do to change this picture?" Our Company's mission is to try to minimize needless suffering and premature death by providing forward looking thinkers an opportunity for a different approach to their health care, one that focuses on prevention. Our Company believes, right down to the individual team member, that we are making a difference every day in what we are doing to give individuals a new lease on life, to give them a few more good years. TWST: The first component you mentioned were the Centers for Preventive Medicine. Exactly what is or what will constitute a Center? Mr. Fey: In partnership with hospitals and physician groups, U.S. Preventive Medicine is developing a national system of preventive care centers, The Center for Preventive Medicine®. This branded, physician-integrated, pre-symptomatic, preventive medicine and "early diagnosis" paradigm leverages the use of hospitals' and physicians' existing excess capacities of sophisticated diagnostic technologies and proven preventive and interventional therapies. More than 300 health systems and physician groups have expressed interest in our Centers for Preventive Medicine. The company's system provides to hospitals and their physicians, without capital expenditure, increased profitability by generating incremental, multiple revenue streams at a time when the entire medical community is facing ever-increasing pressures in pricing, physician support, outcomes and brand loyalty. This turnkey system capitalizes on the current and future growth in demand for preventive medicine, specifically as it relates to prevention, wellness and healthy aging. For consumers and employers, The Center for Preventive Medicine provides a comprehensive preventive medicine program that can help individuals enjoy "more good years." TWST: Will these make more economic use of the physician's time than the present situation does? Mr. Fey: The advantage that our Center for Preventive Medicine brings to a hospital system or to a physician's practice is that by overlaying on top of the existing assets that are already there, it does maximize the efficiency of their office space, of their personnel, of their technology, of their equipment, even of their time. So, the answer is absolutely yes. The Center for Preventive Medicine increases the potential for a physician or health system to generate new revenue out of existing assets. This turnkey system capitalizes on the current and future growth and demand for preventive medicine specifically as it relates to prevention, wellness and healthy aging. This is a movement that we see spreading across the United States, particularly driven by the baby boomer population. We think that the Centers for Preventive Medicine are positioned properly to meet that demand. TWST: You mentioned four initiatives or four elements and you said that they would be integrated one with the other. Would you explain the way in which they will be integrated? Mr. Fey: I think the key to our business is that these business units complement each other. As the second component of our business plan executes, The Prevention Plan™ will be reaching into the business community with a new defined health benefit. The Prevention Plan will target businesses, state and local government agencies with an array of services such as, health risk assessments, health management, behavior modification and disease management services. The Prevention Plan will build on the evolving concept of "prevention," moving beyond the prevention of primary disease in the individual to the identification and prevention of disease in high risk individuals within organized populations, and prevention of secondary conditions in individuals with existing chronic conditions. For example, if a member wants to quit smoking but they need some assistance or they would like to have someone coach them through a weight loss program or get linked into local providers, we can facilitate these kinds of services. The Prevention Plan is a really big idea with a comprehensive suite of services, a new defined health benefit that is packaged around prevention. We will deliver for the first time ever a comprehensive package of preventive services bundled into a defined health benefit. TWST: Tell us about the new disease management acquisition and your intention to consolidate the disease management industry under your new business unit, U.S. Care Management. Mr. Fey: Disease management, also known as secondary prevention, is the third integrated component of our business. U.S. Care Management is the platform upon which we plan to grow internally, as well as through acquisitions. Across the U.S., the business of early detection and chronic condition management is fragmented. There exists a great opportunity to consolidate this industry around a new paradigm of what we call 360 degree care management. Proactive prevention and clinically appropriate chronic and complex disease management delivered in a total surround of the individual in a high level of customer satisfaction is what we call 360 degree care management. For this reason, we are using the 2007 acquisition of Specialty Disease Management Services as the foundation for our new business unit, U.S. Care Management. U.S. Care Management is a comprehensive disease management firm that provides services to public-sector, such as Medicaid, and private-sector health plans, self-insured organizations, Third Party Administrator organizations, integrated delivery organizations and physician practices. U.S. Care Management currently provides a full range of disease and care management and consulting services for chronic, complex diseases using best practices, including, but not limited to asthma, diabetes, coronary artery disease, chronic obstructive pulmonary disease, HIV/AIDS, hypertension, heart failure, obesity, depression, and schizophrenia. This business unit will also provide the back-end coaching and disease management services for The Prevention Plan. U.S. Care Management seeks to ensure the most appropriate care for its patients at every point in the healthcare continuum. TWST: Is there anybody else out there attempting anything similar? Mr. Fey: Our view is that the business of prevention is extremely fragmented and immature and there is no national brand. By putting our integrated business units into deployment for the benefit of consumers and employers, as well as providers, we think we stand alone in the marketplace. We believe this market leadership could lead to a mass migration of both individuals and employers to our brand. We have put all the pieces together in a way that increases the quality of healthcare, increases outcomes-meaning people are healthier, and ultimately increases client satisfaction. Our intention is to manage these integrated business units efficiently. If we do this successfully, it should result in a benefit to our shareholders. TWST: With all these integrated business units, might you enter the health plan business? Mr. Fey: The company management team is composed of a team that has worked extensively in the managed care industry both in startups and the ongoing management of health plans. These health plans have managed employer and government health benefits across multiple states, including Florida, Missouri and New York. Our management team believes there is a potential business opportunity to combine the benefits of prevention (The Prevention Plan), along with clinically appropriate chronic disease and care management (U.S. Care Management) into a next-generation health plan. The business benefits of proactive preventive services on the front end of a health plan coupled with clinically appropriate, 360 degree care management of chronic conditions on the back end should provide improved outcomes and enhanced profitability to the company's proposed health plan model. The company is conducting research into the best market conditions for new health plan startups as well as the potential for acquisition candidates. TWST: How do you link all these businesses together? Mr. Fey: This next step will enable U.S. Preventive Medicine to offer a national, and eventually an international, solution to employers — regardless of where their employees reside. This process will effectively organize an industry that has predominately been encumbered by chaos and fragmentation due to the local nature of delivering healthcare services. This final organizational step will create a powerful national and international network that will accommodate continued expansion of services and solutions as market need and medical/technologic innovation dictates by operating under one national brand. Each member of the U.S. Preventive Medicine Network will continue to enjoy the benefits of operating under their unique "local/regional" brand, but also benefit by being associated with a much larger organized national brand. TWST: Looking out over the next three years or so, what are the main items on your strategic agenda? Mr. Fey: Strategically we believe that the company is going to see growth in the number of Centers for Preventive Medicine that are developed across the country and potentially internationally. Secondly, we think that we will see a substantial growth across the U.S. of The Prevention Plan as the first defined benefit focusing on prevention. We are very excited about the early research on The Prevention Plan. Focus groups conducted with consumers, employers and insurance brokers have resulted in very positive comments. Third, we expect to see growth in our new business platform, U.S. Care Management. This is due to the aging of our population and as the population ages more people are becoming ill. What typically happens is people get sick. When they get sick they go to the doctor; if they are really sick, they go to the hospital. For the most part, our healthcare system focuses on the very late stage management of disease, focusing primarily on the treatment of episodic conditions. We believe that the U.S. Care Management business model is going to grow exponentially as a result of delivering a comprehensive solution for chronic and complex disease management. We think we will see substantial growth across the entire business unit. The fourth piece of our business could develop integrated health plans. We have a great deal of experience in this area and we are going to be very selective in deciding where to enter markets with a health plan. We have some strategic differentiations that we believe will position our health plan model in a class all by itself. Our model would focus on prevention on the front end, sophisticated disease management on the back end, combined with all of the necessary insurance and claim processing tools in the middle. Our sophisticated disease management service would provide a 360 degree care model. This model would include a very high degree of customer satisfaction. We think this model is something that the consumer and the employer want. So, we expect consumers and employers to be receptive to this approach. There are several other components of our business that will eventually support these four business units. These include our work in developing a media property, The Prevention Channel™, and preventionchannel.com. We also will be developing a research component of our business because we know there are substantial opportunities in research and data applications. Along these same lines, we have been presented with technological innovations that could provide enhanced opportunities for our business. We also have had interest in opportunities outside the U.S. that will eventually lead to an international business unit. Our entire view on our business is that by having an integrated company focused on prevention, we are going to provide a solution set that is just not available anywhere in the country or internationally. We think the demand is there and we believe we have created an enterprise that is going to be the complete solution set across all market segments. TWST: What about possible challenges or problems? What will you worry about? Mr. Fey: The critical success factor in any company is to bring very smart people into the organization to be able to meet challenges head on, to recognize where the opportunities are and to recognize where the threats are, but it all boils down to execution. Can we pull this off? Can we do what I've just described? Our management team includes some of the best and brightest in the health care industry. Each one was recruited specifically for the skill set they bring to the table. They can deliver the results — for our customers, for our partners and, ultimately, for our shareholders. Will we face any competitive threats in the future? Certainly. Will we deal with them? Of course we will. That said, we believe there is a great opportunity for the leader in this market. I believe we own the leadership position. We intend to maintain a leadership position in the prevention industry. TWST: How high are the barriers to entry? Mr. Fey: The barriers to entry in this business are in timing, people and capital in the tens of million of dollars to do it correctly. We certainly expect this company to face competitive threats in the future, but we don't see anyone as organized, focused or as smart, tough and tenacious as we are. We also intend to consolidate this industry, so when competitors do emerge, we hope to bring them under our fold to grow the brand as well as to strengthen our leadership position. TWST: What would you hope that the company will look like in about three years? Mr. Fey: U.S. Preventive Medicine has positioned itself as the leader in prevention. We are positioning ourselves as the new power brand in one of the world's largest industries, health care. We are creating the brand that is focused on quality, outcome measurements, and customer satisfaction. We believe that the true measure of our company's success will be determined by the value that our customers place on these attributes. Ultimately, a company's value is in the eyes of its customers. TWST: Do you visualize the company going public at some point down the road? Mr. Fey: All companies must have a future capitalization and liquidity strategy. While no one can say for sure or guarantee such a strategy, we believe the company has a number of options to access growth and acquisition capital. There is a great opportunity for acquisitions, for combinations of companies that will add more depth and breadth to our company and we are identifying those opportunities now. This will take additional capital. We do not see our strategy as a company that is for sale to the highest bidder or one that is looking to exit in a quick profit scenario. The U.S. health care market is $2.5 trillion and growing. The opportunities for U.S. Preventive Medicine are enormous. All we have to do is focus on our mission of providing more good years for our customers, provide the highest quality, 360 degree care, produce substantiated, improved health outcomes and deliver the highest levels of customer satisfaction and the rest will take care of itself. TWST: Would you tell us about your background? Mr. Fey: My background is 30 years in the healthcare industry specializing in marketing and branding of healthcare enterprises across a number of different categories in the healthcare industry. Most of my experience over the last couple of decades has been in the health plan business, the managed care industry. My experience includes raising capital, recruiting a management team, following through with an execution and growth strategy and eventually a liquidity event for shareholders. This company was called Healthcare USA, now a leading managed care company in the Midwest. HealthCare USA was eventually acquired by publicly held Coventry Health Care, where I became a senior corporate officer for several years. My background prepares me very strongly for the leadership position at this company as founder, Chairman and CEO. More important, we have recruited a team of seasoned healthcare and managed care executives, the majority of whom have worked with me in the past in our managed care companies. TWST: As CEO, what occupies your own attention most on a day-by-day basis? Mr. Fey: The most important thing that any Chief Executive can do is to make sure that the people operating the business have the resources they need to get the job done and that they are all very focused on both the short-term and the long-term strategy of the corporation. So my main focus today has been making sure that the company has the resources and capital to get the job done. Secondly, and just as important, is to maintain the strategy upon which the company was founded, which is to provide individuals the opportunity for "more good years®." TWST: How do manage your investor relations? Mr. Fey: U.S. Preventive Medicine is privately capitalized with individual accredited investors from across the United States. The great thing about our investor relations approach is that I know our investors — they have my phone number and they can call me anytime. Additionally, we constantly communicate with our shareholders, both quarterly with updates and conference calls, as well as in between the quarters when something newsworthy occurs. Finally, we hold our annual shareholders meeting via the Internet, so everyone has an opportunity to participate. U.S. Preventive Medicine has raised approximately $20 million to date. We have a great group of investors who support our vision; they support our overall strategy, and they have been financially very supportive of the company. Currently we are working on the future capitalization needs of the company and are involved in discussions and efforts in this arena. TWST: What would be the two or three best reasons for a long-term investor to take a very good look at U.S. Preventive Medicine? Mr. Fey: One need only look at the stories in the various media today, from the Internet, newspapers, magazines and television. We have a healthcare crisis in this country. We have a sickness-focused $2.5 trillion industry that is not working. People are getting sicker and costs are going up. U.S. Preventive Medicine provides a solution to this crisis. We think that our company has an opportunity to increase the amount of money spent on prevention, which is where we will see our benefits business and our center business pick up momentum. But we also provide services on the back end of disease management where we now have U.S. Care Management. As the government projects, the growing numbers in the budget for our health care expenditures in the United States are expected to surpass $3 trillion in the next couple of years. This number is expected to double over the next 10 to 15 years. This is an unprecedented opportunity. We are creating a path to take advantage of this opportunity and to follow the money. We will do this by improving the quality, outcomes and satisfaction of our healthcare system in the process. We think our company is properly positioned, right in the sweet spot of providing a solution set and a new way to provide health care benefits focused on prevention. We believe that our company is going to be able to demonstrate a value proposition for our customers across all market segments, which should provide value for our shareholders. TWST: Would you comment on how you feel about the arc of your career? Mr. Fey: It is my opinion that I have the greatest job in the world, the pinnacle of my career. I think the most profound opportunity in the health care industry resides in our company because we have taken our integrated set of prevention solutions and are providing them to a market in crisis, a market that is demanding these exact solutions. We are offering our customers the opportunity to live a higher quality of life for a longer period of time. Giving individuals more good years is the most compelling reason why anyone would want to take a serious look at U.S. Preventive Medicine. We believe that the company's business proposition of delivering "more good years" presents a tremendous value proposition for our customers, our provider partners and our shareholders. TWST: Thank you. (MC) CHRISTOPHER T. FEY Chairman & CEO U.S. Preventive Medicine, Inc. (214) 288-7544 www.uspreventivemedicine.com

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