So what's up, doc?

• Author: Bailey, David
• Position: Entrepreneur of the Year Steven Scott of Coastal Healthcare Group Inc. - Includes related article - Cover Story

For our Entrepreneur of the Year, it's new ways to make healthy profits from an ailing medical system.

In 1984, Dr. Melvin Harris had just about decided to leave St. Louis-based Spectrum Emergency Care Inc., then the nation's largest contractor of emergency-department physicians, to join Steven Scott, a Fayetteville obstetrician whose new company was experiencing some labor pains.

But Harris had second thoughts about Durham-based Coastal Healthcare Group Inc., which had revenues of less than one-fourth Spectrum's $90 million: "I told Steve, 'Now, the last thing I can afford to have happen is I resign from Spectrum and come to work for you, and six months from now or a year from now, Spectrum buys Coastal.'" He asked for a guarantee that Coastal wouldn't sell out to Spectrum for four years.

"Well, I'll be glad to put that in there," Scott responded, "but what if Coastal buys Spectrum?"

We both had a laugh, but he meant it. ... At the end of 1983, for everybody but Steve Scott, that was probably an unrealistic target.

BUSINESS NORTH CAROLINA'S Entrepreneur of the Year has always set his sights high. Having grown up poor, he became a doctor. Then, during his residency at Duke, he got his first taste of business by contracting other residents to work in emergency rooms. In 15 years, he turned this sideline into a 1,300-employee, $213.6 million company with seven business units. In each of the past six years, it has grown 30%.

Last year, Coastal Healthcare went public in one of the most successful IPOs in the state's history. It raised $25 million in cash and left Scott, who had found birthing businesses much more lucrative than delivering babies, with stock worth about $165 million in late August.

From the first, he had not been satisfied to restrict his business to hiring out emergency-room physicians. In 1983, he began contracting OB/GYNs to hospitals to care for indigent mothers, then pediatricians to care for indigent infants. In '84, he started a company to collect emergency-room bills. In '85, he started his own insurance company to keep down malpractice premiums on Coastal's doctors. That same year, he began handling temporary staffing of physicians, then, two years later, contracting them to the military. His latest venture has been providing hospitals with anesthesiologists.

Where others see a health-care system in chaos, Scott, with an insider's perspective, sees opportunities. But what sets Coastal apart from competitors is its ability to grow not only rapidly but soundly. Like any good entrepreneur, Scott takes risks. But unlike many, he readily delegates authority to his employees -- then pushes them and himself to the limit to reap the rewards.

"Everybody in this company has their track shoes on," President John A. Hemingway says. Working for Steve Scott "is a little like grabbing onto the wind because he's always moving, always thinking, always envisioning new things," adds Carolyn Carle, who came to work for him in '79 and is now vice president of medical-staff development.

She recalls one time they were having lunch in a hospital snack bar. "He said, 'You know, hospitals don't have good snack bars.' And I thought, 'Oh, my God, I might be buying Fritos for hospitals.'"

Carle thought he was kidding. Says Scott: "I wrote the guy a letter to see if he had any interest in selling the snack bar, but I didn't tell Carolyn that. She might have quit."

Scott was an only child whose parents divorced when he was 6. Shortly afterward, his father, a tool-and-die maker with an eighth-grade education, moved away from suburban Indianapolis to Southern California. His mother took a secretarial job. "From 6 to 10, I had to live with my mother and grandmother, who also had another family living there. We didn't have running water, and we didn't have an indoor bathroom." His goal back then was pretty straightforward: "Being able to own a home one day became kind of a major focus."

Although Scott had jobs from time to time as a teen-ager, he didn't demonstrate any particular entrepreneurial tendencies. He was on his high-school wrestling and football teams but was never a star.

He was the first person from either side of his family to go to college and during his first two years at Indiana University had a great time. At the end of his sophomore year, he was looking at a 2.2 average. "People told me if I wanted to be a physician, I'd never make it," he recalls. "I set my goals to get into medical school." Two years of closeting himself in the library brought up his grades, and in 1970, he was accepted at Indiana's med school. In 1974, he moved to Durham to begin his residency, becoming certified in obstetrics, gynecology and emergency medicine.

He began ER work in Wilson in '75, moonlighting to pick up some cash. Emergency rooms were generally staffed by doctors who agreed to be on call for the privilege of practicing at a hospital but often lacked the skill and zeal it took to treat trauma victims. In the late '70s, emergency care became a specialty, based on advances in treating the wounded in Korea and Vietnam. One thing became...