Community Health making big moves

FOR-PROFIT COMPANY TO ENTER NOT-FOR-PROFIT SPOKANE, WASH., MARKET

 

By John Mugford

SPOKANE, Wash. – Franklin, Tenn.-based Community Health Systems Inc. (NYSE: CYH) is on the verge acquiring two hospitals in Spokane and pumping tens of millions of dollars into renovating the facilities.

According to local news reports, Community Health has signed a letter of intent with Empire Health Services in Spokane for the acquisition of Deaconess Medical Center and Valley Hospital and Medical Center. For-profit Community Health would then create a new independent not-for-profit healthcare foundation that would collect the balance of funds from the sale after paying off Empire Health Service’s debts on the Deaconess and Valley facilities.
The book value of Empire’s assets is $220 million according to its 2006 financial reports. However, neither entity has disclosed a potential sale price for the two hospitals.

According to Empire health officials, the two hospitals need about $100 million worth of upgrades – a figure the health system could not afford without an influx of capital from a company such as Community Health, a for-profit, publicly owned provider that operates a total of 80 hospitals in 23 states. An influx of capital is expected to make Deaconess into a more worthy competitor for the city’s dominant hospital, Sacred Heart Medical Center, which reportedly enjoys a 50 percent market share of the Spokane healthcare market.

For Community Health, the Spokane deal would mark another step in its recent and rapid growth. Earlier this year the company entered and agreement to acquire Plano, Texas-based Triad Hospitals Inc. (NYSE: TRI) for $6.8 billion. The merger, which is expected to close this summer, would increase Community’s hospital portfolio to 133 facilities in 28 states and make it the largest publicly traded hospital company in the country. Its annual revenues are expected to increase to more than $10.2 billion after the acquisition.

According to reports, Community’s debts total more than $9 billion even before the acquisition of the Empire Health facilities.

While the deal would most likely improve the health of the overall Spokane healthcare market, some observers are concerned about bringing a for-profit system into a market that’s traditionally been dominated by not-for-profits. Local doctors have said they want strong hospitals that continue to work together, noting that St. Luke’s Rehabilitation Center is run by a joint venture of competitors Empire Health and Sacred Heart Medical Center.

Other observers have expressed concern that Community will put profits ahead of proving quality care – a charge Community disputes. News reports indicate that Spokane’s not-for-profit hospitals aim for profit margins of 3 percent to 5 percent. The gains are invested, used to finance construction and equipment purchases, and plowed into local charities. Community Health, on the other hand, expects a 15 percent margin after the large Triad merger.

Communtiy Health

plans replacement

in Barstow, Calif.
BARSTOW, Calif. – Barstow is likely to get its long-awaited hospital after 20 acres of land closed escrow in late June, an occurrence that should clear the way for Brentwood, Tenn.-based Community Health Systems to develop a 60-bed acute-care hospital.

The city agreed to sell the land for $650,000 to Community Health, which currently operates the 100-year-old, city-owned Barstow Community Hospital.
Community Health is currently pursuing engineering and design work for submittal to the California Office of Statewide Health Planning and Development (OSHPD). Community Health plans to have the new hospital operational by Dec. 31, 2011, which would meet an agreement between the health system and the city.

The new hospital is needed to meet California’s seismic safety laws, according to Community Health officials. In 2001, the city conducted a study to determine the costs of renovating the existing hospital or building a new facility. A renovation had an estimated cost of $18 million while building a new facility was pegged at between $25 million and $30 million.

In ensuing years, however, the costs began to climb, with a 2003 estimate putting the budget for a new hospital at anywhere from $60 million to $70 million. In 2005 the city signed a term sheet with Community Health Systems that called for the health system build the replacement hospital. The two entities signed a definitive agreement in October of that year.

 
Sell-offs likely

after Community,

Triad merger
FRANKLIN, Tenn. – Folks who follow healthcare real estate have indicated that 10 hospitals in Arkansas are potential sell-off targets after the $6.4 billion merger of Franklin-based Community Health Systems and Plano, Texas-based Triad Hospitals is completed in coming weeks.

The merger plan, announced in March, would have Community acquire Triad. That could mean the sale of several debt-prone Arkansas facilities, according to Whit Mayo, a healthcare analyst with Stephens Inc. in Little Rock, who was quoted in the Arkansas Democrat-Gazette in late June.

According to other reports, Community is likely to sell 15 to 20 hospitals overall after it acquires 8-year-old Triad, whose shareholders recently approved the acquisition by Community.

The transaction is expected to save about $84 million in operating expenses. Community will assume about $9.1 billion of debt.

Community officials say the company has acquired and integrated 55 hospitals into the system since 1996 – it operates a total of 80 hospitals nationwide with a total of nearly 9,400 licensed beds. Triad operates 47 hospitals throughout the country as well as 13 ambulatory surgery centers (ASCs).

According to news reports, Community and Triad hospitals in Arkansas and Texas were likely to be targeted as sell-offs because they are more prone to bad debt, with a number of them serving a higher concentration of uninsured patients.
Community Health, which was founded in 1985, concentrates on operating and acquiring hospitals in secondary and smaller markets, in part to allow its physicians the chance to practice with fewer restrictions from managed care providers. Community operates in 23 states and in more than 85 percent of its markets it is the sole provider of healthcare services.

Triad was spun off from Nashville-based HCA Inc. in 1999. It operates facilities in 17 states and provides hospital management services to as many as 180 community hospitals through a subsidiary.

For the Record

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