Who’s in Charge?: Unraveling Hear USA, part 12

Alas and alack, HearUSA’s honeymoon was short and the HEARX-Helix marriage was not a happy one.  From the get go, corporate cultures clashed as top players came out fighting for control. In one corner, Steve Forget represented Helix. In the other corner, Dr Brown and Steve Hansbrough were the HEARx  team.

HEARx culture prevailed. West Palm Beach, Florida was the nerve center, with a lavish, micromanaged HearUSA Central Office growing to 19,600 sq ft by the end of 2003{{1}}[[1]]HearUSA 2003 10-K Annual Report[[1]]. HearUSA’s 158 offices in eight US states and Canada were shaven and shorn of responsibility and control.  Sticking with the marriage analogy, HEARx acted the part of the controlling husband; Helix took on the part of submissive wife who wasn’t allowed out unaccompanied. To wit:

• Customer Service–a key feature of Helix offices–was centralized in one big room at Central Office.
• The Hear USA Board of Directors was “stacked” with Friends of Dr. Brown according to some observers, as Helix Directors were released, replaced or promoted off the Board.{{2}}[[2]]By 2003, the Board lost two Helix appointees, Mark Wayne and Steve Forget.  Another Helix transplant, Pierre Bourgie, was gone by the end of 2004.  By that time, Michel Labodie was the only Helix relative remaining on the Board. Gino Chouinord was promoted to CFO in 2003[[2]]
• Office acquisitions– a mainstay of the Helix model–ground to a halt as HearUSA’s Central Office worked to bring offices into conformity.{{3}}[[3]]Total offices dropped from 158 to 156 from 2002 to 2004, due in part to loss of Quebec offices[[3]]
• Helix clinics were varied acquisitions rather than start-up offices in the HEARx model.  Many could not achieve conformity with the HEARx quality control view of hospital accreditation. {{4}}[[4]]”Hospital accredited” offices had to have CPR-trained staff, defibrillation units, and met ADA compliance.[[4]]

As the HearUSA marriage entered year two, half of the Helix clinics were accredited, half were not. That didn’t play well with Dr. Brown’s vision of marketing a network of accredited service centers to insurers. Another problem was money, which was defying gravity as it flowed to the top, where management was top heavy and misaligned.

Something and somebody had to go. No big surprise that it was Helix clinics and the Helix guy. With fewer than 24 months on the job, Steve Forget left in 2003, taking 40 of the Canadian offices with him{{5}}[[5]]Forget also took first right of refusal for the Ontario, CN, offices, but didn’t exercise that option within the allotted 18 month timeframe.[[5]].  Whether he was forced out, bought out, or both depends on who you talk to. For sure, Forget was made to fall on his sword after HearUSA had to pay $352,873 to the Commonwealth of Massachusetts to settle improper Medicaid billing  by eight former Helix offices in 200-2002.  The lapse was discovered by an internal company audit, not Medicaid.

Another version is that Dr. Brown and Mr. Hansborough made assurances during the merger that they were going to take their profits and retire in 2003.  Forget left once it became clear that HEARx upper management was there to stay.  An early SEC document{{6}}[[6]]Form 8-K, Exhibit 99, dated 7/30/2001[[6]] and an audiologyonline report support that version:

The initial board of directors of the combined company will be composed of five members designated by HEARx and four members designated by Helix. Paul A. Brown, M.D. will remain Chairman of the Board and Mr. Steve Forget, Helix’s current President and Chief Executive Officer, will serve as President and Vice-Chairman. (ital added)

It didn’t happen.  The Board never tallied nine members, nor was it balanced.  If Forget was President or Vice-Chair, it didn’t show up inHearUSA’s annual reports, although he was listed as a Director in 2002.{{7}}[[7]]according to the 10K SEC document, Mr. Forget served as an officer of HearUSA until October 2002 and as a director until May 2003. [[7]] But, it sure looks as though Steve thought he had a top spot, judging from a (then) business card on the internet listing him as President of HearUSA. Hearing Review thought so too– as late as November of 2002 it announced Forget’s departure from HearUSA thus:

… Steve Forget, former CEO of Helix and, after the HEARx-Helix combination, president and a director of HearUSA, has resigned as an officer and employee.

Basically, that ended the marriage but the children and the wedding costs stayed with HearUSA.  HearUSA entered 2003 with HEARx folks firmly in charge.   Oh, and there was one more weird relative still hanging around.  That guy will make a brief appearance next week, as part of a discussion of how money can flow uphill.

Photo:  Tom Selleck in Quigly Down Under