American PsychManagement, an area firm that is a pioneer in managing mental health care benefits for corporations, has received a major infusion of cash from a prominent venture capitalist, officials said last week.
ValueCare Inc., a new firm headed by Robert E. Patricelli, a well-known health industry executive, made an investment in April of $4 million in American PsychManagement and has become the largest shareholder in the Rosslyn company.
The new capital will enable the three-year-old American PsychManagement to beef up its computer system, improve its marketing and obtain licenses in additional states, executives said.
"We were very thinly capitalized for a long while," said Ken Kessler, the company's president. "It's going to enable us to be more aggressive. We haven't looked aggressively at expanding because we didn't have the capital to do it."
Last week's disclosure signals an interesting marriage between a company in a new and fast-growing niche of the health care industry and a start-up venture by one of the industry's most seasoned veterans.
American PsychManagement is one of a handful of new companies that seeks to control mental health care costs, a source of skyrocketing expense for many major corporations.
The firm offers a variety of services, ranging from utilization review boards that monitor psychiatrists' practices for unnecessary treatment to setting up prepaid mental health insurance plans akin to health maintenance organizations.
The company reported revenue of $6.5 million in 1986 and expects to top $14 million in 1987, Kessler said. It has contracts with more than 20 firms, including MD-IPA, the Rockville HMO, Hospital Corp. of America, and Southland Corp., the operator of 7-Eleven convenience stores.
Patricelli was until January the head of the health maintenance organization division at Cigna Corp., the giant insurance company that operates one of country's largest chains of prepaid health plans. He has since set up ValueCare with backing from Warburg, Pincus & Co., a big New York venture capital firm.
Patricelli said American PsychManagement is the first investment for his new firm, which he said is seeking to establish a network of companies providing different types of health care cost containment services to employers.
The network would eventually include a dental benefit company, a pharmacy company, and a company specializing in general control of medical expenses, and employers could select which services they need, he said.
ValueCare illustrates the new push in the industry to develop new areas of entrepreneurship in the wake of recent problems by HMOs, which until recent woes were the subjects of intense investor interest.
"I think the HMO line is very difficult," said Patricelli. "In the ancillary areas, like Ken's, there is still a lot of room for development. The field is still not crowded, and employers' needs are substantial."
Kessler said the prospect of participating in such a network was an added attraction of American PsychManagement's newest venture.
In the meantime, he added, Patricelli's new affiliation with his company has been critical to opening new doors with potential corporate clients.