Summertime is a sweet season for the leadership team at Primaris this year. The health care consulting firm is celebrating its new status as a private company, marking the end of its journey to convert from nonprofit organization to a for-profit company.
For new owners Richard Royer, Joel Kaplan and Mike Levinger, closing the deal on the purchase of Primaris Holdings Co. means the end of an 18-month journey to transition the 33-year-old organization into a privately held consultancy and set a course for health care solutions of the future.
“Health care providers are scrambling to cope with today’s regulations while planning for five years from now,” says Primaris CEO Richard Royer. “The bar always gets higher.”
Founded in 1983 by the Missouri State Medical Association and the Missouri Association of Osteopathic Physicians and Surgeons, Primaris began its organizational life as the Missouri Patient Care Review Foundation. The nonprofit foundation sought to establish and coordinate uniform, high standards of medical care and health services by the associations’ members, and conducted peer review of patient care delivery for Medicare. In 2004, the foundation changed its name to Primaris and moved from Jefferson City to Columbia.
“We are the utility for Medicare quality management in Missouri,” Royer says. “As the state quality improvement organization, we work directly with the medical provider community to improve the organization and improve care. The government is our customer, because it’s paying the bills, but the work is patient-focused.”
As regulations have evolved, and legislation such as the Affordable Care Act enacted, quality control has moved from measuring processes to measuring outcomes, Royer says. “This is the modern approach to quality,” he says.
In 2014, the two physicians associations began looking for a way to exit the quality control business so they could concentrate on the foundation’s educational mission. They formed a C-corporation with the shell of a nonprofit and sold it to the management group; the new owners began the process of converting to a for-profit operation. Although Primaris is now a privately held for-profit company, it still produces nonprofit services as Primaris Foundation, a 501(c)(3 ) organization within the shell of the for-profit Primaris.
With paperwork filed and documents signed, Primaris begins the summer as a newly structured company with 120 employees in 15 states. The owners serve as the management team — Royer as CEO, Kaplan as chief financial officer and Levinger as chief operating officer.
The three-tiered business plan offers services through federal and state Medicare contracts as well as the company’s private consulting work. About 20 percent of Primaris’ business comes from its contract with the Centers for Medicare and Medicaid Services for quality review. Another 15 percent of business stems from the company’s Missouri CLAIM contract, a state health insurance assistance program administered through the state Department of Insurance.
Growth has come in Primaris’ third area of business, Royer says. “Two-thirds of our business is in private consulting now,” he says. “That’s a complete flip from what it was in 2013. We have a client list of 30 to 40 health systems nationwide, ranging from large systems with multiple hospitals to large group practices to small rural hospitals. It’s a value-based payment group.”
Such rapid growth — five-fold in three years — presents challenges for the former nonprofit. “We had to learn marketing,” Royer says, “and expand our online presence — a website, social media, webinars. We send out mass mailings, speak at conferences, sponsor trade shows and publish articles. I published nine articles last year — before 2015, I published zero.”
Primaris launched a sales department this year and hired its first commissioned sales person. Royer expects to hire additional sales staff next year.
“We’re looking to grow business, but not only in sales,” Royer says. “We have a major grant-writing division. A Centers for Disease Control grant funded our work with University of Missouri Health Care when we rolled out electronic record-keeping to public health agencies.”
There are growing pains, Royer concedes. “Mistakes cost money. When you are a new organization, that can be painful.” One of the advantages he sees in converting to a for-profit operation is flexibility. “This is wonderful ground to be working in, simply because of the change that’s demanded,” he says.
Royer calculates the company’s growth at $1 million per year. “We could go from a revenue base of $7 million to $10 million in three years,” he says. “We’ll probably add 10 employees a year as we grow. It wouldn’t surprise me if we went from 120 to 150 full-time equivalents by then.”
He plans to offer financial involvement to Primaris employees through a stock purchase program or profit-sharing. “I want employees wedded to the fate of the company,” Royer says. “The people here are my only asset — I want maximum involvement from them.”
Primaris faces challenges as the owners pick their way through the volatile landscape of the health care market. The company faces newfound challenges in competition as well as market unpredictability and a speedily consolidating industry. “We’ve learned some early lessons,” Royer notes. “Consultants have to constantly reinvent themselves so they don’t work their way out of a job.”
Step By Step
Converting a nonprofit organization to a for-profit company requires a bit more effort than simply relinquishing tax-exempt status to the IRS. These steps are common to the process.
1. Consult a tax adviser. Review tax returns and assess income potential to prepare for discussions with your board. Survey the relevant market to determine value of the organization and its assets.
2. Meet with the board of directors. Address positives and negatives of the conversion. Record the board vote and prepare a notice of intent for employees, members, donors and partners.
3. Notify the IRS. Compose a “statement of nonprofit conversion” that provides the reason for nonprofit termination. Include a certified copy of your liquidation and asset disposition plan. Be sure to list the organization’s fair market value and any asset recipients.
4. Register your new status with the state. For-profit businesses pay state taxes, too. Contact the Missouri Secretary of State and the Department of Revenue for the appropriate paperwork.
5. Communicate. Notify employees, members, donors and affiliates about the change.
6. File a final nonprofit tax return. The IRS wants this return within four months and 15 days from the termination of nonprofit status. Depending on gross receipts, you can use e-Postcard Form 990-N (less than $25,000), Form 990-EZ (less than $1 million) or Form 990 (all others).
For more information, visit www.irs.gov/charities-non-profits.