Car­i­tas agrees to $830 mil­lion deal with Cer­berus

Modern Healthcare - - Editorial - Me­lanie Evans

Car­i­tas Christi in Bos­ton be­comes sec­ond not-for-profit in one week to agree to be bought by for-profit suitor.

Car­i­tas Christi Health Care has an­nounced the sec­ond deal in a week that would send a cap­i­tal­starved, not-for-profit health sys­tem into the arms of a for-profit suitor. The six-hospi­tal Catholic health sys­tem, owned by the Arch­dio­cese of Bos­ton, said on March 25 it agreed to an $830 mil­lion of­fer from the New York pri­vate eq­uity firm Cer­berus Cap­i­tal Man­age­ment. The deal will con­vert the sys­tem, which has strug­gled fi­nan­cially in re­cent years, to a for-profit com­pany, but the part­ners said in a writ­ten state­ment the Bos­ton-based sys­tem would con­tinue to fol­low Ro­man Catholic di­rec­tives for med­i­cal care.

And six days ear­lier, Van­guard Health Sys­tem, a Nashville-based, for-profit hospi­tal chain, said it signed a let­ter of in­tent to ac­quire not-for-profit, six-hospi­tal Detroit Med­i­cal Cen­ter, for $417 mil­lion plus an ad­di­tional $850 mil­lion cap­i­tal in in­vest­ments over five years (March 22, p. 4). Ten-hospi­tal Van­guard’s deal hinges on state, county and city ap­proval of a spe­cial eco­nomic zone.

The deals may be among many in 2010 thanks to the re­ces­sion, health re­form and lim­ited ac­cess to cap­i­tal mar­kets among weaker bor­row­ers (Jan. 18, p. 20).

Car­i­tas Christi will also see a sig­nif­i­cant in­fu­sion of cap­i­tal un­der its deal with Cer­berus. Un­der the agree­ment, Cer­berus will in­vest $400 mil­lion in ma­jor construction projects at each of the sys­tem’s hos­pi­tals and re­pay its out­stand­ing debt, which to­taled at least $272.7 mil­lion, ac­cord­ing to a Jan­uary re­port by Moody’s In­vestors Ser­vice.

Car­i­tas did pre­vi­ously seek a Catholic buyer, but its ten­ta­tive agree­ment with St. Louis-based As­cen­sion Health, the na­tion’s largest not-for-profit health sys­tem, fell apart in 2007 (July 2/9, 2007, p. 8).

Job cuts and higher rates for man­aged-care plans helped Car­i­tas Christi close its books last Septem­ber in the black af­ter los­ing roughly $20 mil­lion the prior year, ac­cord­ing to Moody’s and fi­nan­cial state­ments. In­clud­ing the $23.7 mil­lion sale of its med­i­cal lab­o­ra­tory sub­sidiary, the sys­tem fin­ished the year that ended in Septem­ber with op­er­at­ing in­come of $54.3 mil­lion on $1.32 bil­lion in rev­enue last year.

Cer­berus also agreed to in­vest an un­spec­i­fied amount to fund op­er­a­tions and agreed to take on Car­i­tas Christi’s pen­sion li­a­bil­i­ties. The firm also agreed to main­tain Car­i­tas’ staffing lev­els, its res­i­dency and teach­ing pro­grams, and its man­age­ment team, in­clud­ing Pres­i­dent and CEO Ralph de la Torre.

The deal must be ap­proved by the Mas­sachusetts Pub­lic Health Depart­ment, the state at­tor­ney gen­eral and the Arch­bishop of Bos­ton. Stan­dard & Poor’s says the deal is ex­pected to close in four to eight months.

Car­i­tas Christi will con­tinue to fol­low church poli­cies for free and dis­counted care and other sub­si­dized ser­vices known as com­mu­nity ben­e­fits, pas­toral care and la­bor re­la­tions, ac­cord­ing to the state­ment.

De la Torre will con­tinue as pres­i­dent and CEO.

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