Monday, June 30, 2008

Tony Wright of HQ Investments talks about the Long-term Care Industry

Tony Wright of HQ Investments talks about the long-term care industry, their efforts with a wine business, and their current investment criteria.

What is HQ Investments?

We started in the healthcare business back in the 60s. HQ comes from the name HealthQuest. We’re based in South Bend, Indiana with an office in Austin, Texas Over the years we built various healthcare businesses focused on long-term care, including nursing homes, assisted living facilities, retirement housing communities, rehab therapy, institutional pharmacy, home infusion therapy, nursing home software and medical training. In many of these businesses, we were providing services that were reimbursed by the government. In the 90s we made the decision to get out of those businesses where we were actually providing goods and services directly to patients.

Why did you get out of that business?

A number of reasons, but one of the largest ones was future reimbursement pressure. In the early 90s the government reimbursement portion of the long term care industry was moving to a system similar to the DRG-based system used in the hospital industry. DRG stands for Diagnostic Related Groups. Prior to that time, Medicare reimbursement for long-term care was cost-based. Now everything has a code assigned to it and that dictates how much you get paid, regardless of what it costs you to provide those goods or services. Another reason was related to the difficulties of satisfying all of the constituencies involved. First, there are the residents that you provide care for. They have one set of expectations but they’re not paying the bills. Then you have their families who are very involved in what you’re doing but they have another set of expectations and they’re not paying the bills either. Then you have the government who has yet another set of expectations and they are paying the bills. This creates a difficult environment to operate in. After nearly 30 years of successfully dealing with these challenges, we were ready to move on to new areas of opportunity.

What are you moving into?

We started making venture investments in 2002. Since then we’ve invested in companies in various industries - online furniture retailing, online wine retailing, software, healthcare services, and real estate.

How did that work out for you?

We’ve had some great successes and some complete flame-outs. We’ve done well in software, healthcare services, and real estate but the furniture and wine ventures didn’t pan out very well.

What about the wine business – how has that worked out?

The original business plan for the wine business ( was to provide a means for small wineries to get national distribution. The three-tier distribution system squeezes out the small winery. We wanted to make it possible for consumers to get access to small wineries without having to go to their tasting room. That was the original idea. It was well-received by wineries.

What came of it?

We weren’t able to make any money with it. We sold the company. We didn’t do our homework. It’s a crowded field.

What do you look for in deals?

We’re usually not early stage investors, although we have made some exceptions in the past. Our preference is to do something with companies that have a proven product/service and we can see a path to profitability. I’m naturally drawn to healthcare deals. We’re part of an angel group in Indianapolis called HALO Capital Group which stands for Hoosier Angels Looking for Opportunities. It’s similar to CTAN, and is focused on promoting development in Indiana. HALO’s website is here.

What kind of deals are you seeing?

HALO sees deals from Indiana University, Purdue and Notre Dame. We’re doing a deal on stem cells and another one involved in providing technical training to industrial workers who operate complex machinery and equipment. We recently did one on software for Chambers of Commerce.

What’s your investment philosophy?

The management team is important. We’ve found that no matter how good the product or idea is, if the management team isn’t right the company will probably fail.

Best regards,
Hall T.