BusinessTN asked former Senate Majority Leader Bill Frist to weigh in on the outlook for health care services in an uncertain economy, as well as on Nashville's status as a fertile ground for health care private equity. In addition to his roles as policy maker, doctor and the son of the founder of Nashville health care giant HCA, Frist is a partner in the Chicago-based private equity firm Cressey & Co., which recently opened an office in Nashville.

BTN: What is your view of the current state of entrepreneurial capital flowing to health care businesses in Nashville? What can we do to address future challenges?

Frist: Nashville has a 45-year history of leading the country, and indeed the world, in innovation in health care services. Accompanying this remarkable phenomenon has been the continual creation of experienced, much-in-demand human capital and the steady growth of entrepreneurial-oriented financing by active, locally based, nationally respected players. From this innovation in health services grew innovation in other sectors of health care, increasing the demand for early stage capital.
Regional and national sources of debt and equity have played an increasingly prominent role, supplementing the experienced local firms. But for Nashville to continue growing great health care companies will require an increase in the number and wherewithal of financial players who understand the unique pathways to creating value in health. To maintain the vibrancy of health innovation, the Nashville business and investment communities should continue to support recent initiatives in angel investing, with cultivation and mentoring of young business leaders, maximizing the opportunity for interaction among the now three generations of management and investors.

BTN: Why, amidst uncertain times, does the health care services sector represent a good investment opportunity?
Frist: The credit crunch has primarily affected larger deals and privatization transactions that depend on large amounts of relatively inexpensive debt financing. There remains adequate equity and debt available for strong businesses and talented executives.
Remember the 21/2% Rule: Overall health spending in the U.S. has consistently grown an average of 21/2% faster than GDP over the past forty years. That will continue, almost guaranteed because of today's focus by policy makers and payers on competition on value—with outcomes and performance being increasingly measured and rewarded. This increased emphasis on value demands transformation of health service delivery and thus investment opportunity: paper to electronic, provider-centered to individual-centered, limited choice to expanded choice, process-focused to outcome-focused and quantity–based to evidence-based. Successful transformation will be rewarded as investment return.

BTN: Why is Nashville the perfect place to grow this sector?
Frist: Transformation in health services and delivery requires innovation, and Nashville is the epicenter of much of that remarkable innovation. Rather than being adversely affected by the relative scarcity of buyout credit and its increased pricing, Nashville's community of strong health care businesses will likely flourish in challenging capital markets that value long-term growth and stability over financial engineering.
Nashville has secured its place as a business capital for health care services—just as Silicon Valley has done for technology, New Jersey for pharmaceuticals and Southern California for biotechnology. It's a remarkable success that we must continue to promote not just nationally, but across the world. Nashville's strength in health care developed from a critical mix of experienced executive talent, entrepreneurial energy and the availability of capital. Those forces still sustain its strength today.
As a Nashville native who grew up in an entrepreneurial health care family, participated in cutting-edge research at Vanderbilt, and later helped shape public policy nationally, I've seen firsthand how extraordinarily unique the Middle Tennessee environment is for leading creatively and innovatively.
Over the next decade, the gaps in access and cost and quality that are increasingly apparent in the health sector will demand answers, and Nashville is uniquely positioned to provide them. The community has birthed hundreds of successful, pioneering health care companies in the past and will rise to these challenges of the future.

BTN: For the benefit of our statewide readers, please describe Cressey & Co. and the company's plans for the Nashville market.
Frist: Cressey & Co. has opened a major office in Nashville because Nashville is where the action is. Making capital available for investments in health care services and facilities is Cressey's primary objective. The core of our strategy continues to be building world-class businesses in partnership with extraordinary management. We focus on building great health care companies versus buyout or venture investing. Our investment philosophy is growth-focused, using leverage prudently to finance acquisitions and organic growth projects for middle-market companies that are already solid. That middle market, which encompasses much of Nashville's health care community, continues to appeal to lenders, investors and strategic buyers.
Our presence will benefit both entrepreneurs and us as investors, allowing us to build deeper relationships, enhance local understanding and strengthen long-term partnerships. Cressey will add yet another dimension to what Nashville offers as a home for new and growing health care companies.

BTN: Given your résumé and the buzz surrounding a possible gubernatorial run, do you intend to remain focused on this latest endeavor?
Frist: My family—from Dad, a doctor here since the 1930s, to my brother Bobby in surgery, to Tommy and HCA, to me, specializing in health policy in the nation's Capitol—has been consistently dedicated to healing and health. My adult professional life has fallen into 12-year cycles: 12 years of transplanting hearts and lungs, mostly at Vanderbilt, 12 years as a health policy maker representing over six million Tennesseans. The next 12 years will combine the two earlier cycles in encouraging and investing in young companies that will help solve the really big problems of cost, access and quality of health care—problems that neither a single doctor nor a bureaucratic federal government can solve.

BTN: Thank you for your time.