Join­ing forces

Not-for-profit sec­tor sees three deals move for­ward

Modern Healthcare - - The Week In Healthcare - Vince Gal­loro

While deals be­tween not-for­profit hos­pi­tals haven’t taken off like a rocket, three such deals got off the launch pad last week.

In Texas, two-hospi­tal Val­ley Bap­tist Health Sys­tem, Har­lin­gen, and Knapp Med­i­cal Cen­ter, Wes­laco, an­nounced a mem­o­ran­dum of un­der­stand­ing to­ward form­ing a new not-for­profit sys­tem. Mean­while, two Ro­man Catholic sys­tems an­nounced that they have com­pleted a deal that will form a new, four-hospi­tal sys­tem in Idaho and Ore­gon.

And in At­lanta, St. Joseph’s Health Sys­tem, which is part of Catholic Health East, New­town Square, Pa., and Pied­mont Health­care an­nounced that they have signed a let­ter of in­tent to form a new joint op­er­at­ing com­pany.

There cer­tainly is a lot of talk of deals, but most of it is com­ing from buy­ers rather than sell­ers at this point, said Trey Crabb, who re­cently formed Nashville-based Health Strat­egy Part­ners to pro­vide in­vest­ment-bank­ing ser­vices to both for-profit and not-for-profit providers. “The one thing that still isn’t chang­ing is that there’s a lot of in­er­tia around mak­ing big de­ci­sions like this when they need to be made,” Crabb said. By the time many boards de­cide to sell, Crabb said, the as­sets have lost most of the value that they could have fetched in a sale.

“We have yet to see the sup­ply come in, al­though cer­tainly, the buy­ers are out there if and when it comes,” Crabb added.

The Texas deal in­volves two long-stand­ing not-for-prof­its in the Rio Grande Val­ley that have con­sid­ered a tie-up for some time, said James Eastham, pres­i­dent and CEO of Val­ley Bap­tist. The de­ci­sion to move for­ward now wasn’t prompted by health­care re­form, he said, but by a seem­ingly uni­ver­sal con­cern: ac­cess to cap­i­tal. “To­gether, we’ll be stronger fi­nan­cially,” Eastham said.

Knapp Med­i­cal Cen­ter al­ready has good ac­cess to cap­i­tal, but the deal was a good op­por­tu­nity to join forces with a much larger sys­tem with equal say on gov­er­nance, said Jim Sum­mer­sett, pres­i­dent and CEO of 202-bed Knapp.

Com­bin­ing with Val­ley Bap­tist should pro­vide im­por­tant physi­cian links for Knapp, Sum­mer­sett added. Val­ley Bap­tist’s med­i­cal staffs have the sub­spe­cial­ists that Knapp lacks, and the deal should strengthen the re­fer­ral links, Sum­mer­sett said. An­other physi­cian link will come in the form of a new med­i­cal school that the Texas Leg­is­la­ture has ap­proved for Har­lin­gen, Sum­mer­sett said.

The only reg­u­la­tory ap­proval needed for the deal would be an­titrust clear­ance from the Fed­eral Trade Com­mis­sion, Eastham said.

Mean­while, Trin­ity Health, Novi, Mich., com­pleted its ac­qui­si­tion of three hos­pi­tals in Idaho and Ore­gon from Catholic Health Ini­tia­tives, Den­ver, for undis­closed terms last week. The deal was first an­nounced last fall (Sept. 7, 2009, p. 12). The three hos­pi­tals were com­bined with Trin­ity’s 398-bed St. Alphonsus Re­gional Med­i­cal Cen­ter, Boise, Idaho, to form the St. Alphonsus Health Sys­tem cov­er­ing south­west­ern Idaho and east­ern Ore­gon, said Sally Jef­f­coat, pres­i­dent and CEO of the new sys­tem.

The sales agree­ment in­cluded a $40 mil­lion cap­i­tal com­mit­ment to the three hos­pi­tals over the next five years, Jef­f­coat said. CHI was in­ter­ested in sell­ing be­cause it didn’t have a strong enough pres­ence in the area to have any lever­age in the mar­ket, Michael Rowan, CHI’s ex­ec­u­tive vice pres­i­dent and chief op­er­at­ing of­fi­cer, said in an e-mail.

Trin­ity’s fi­nan­cial and clin­i­cal in­for­ma­tion sys­tems will be ex­tended to the new ac­qui­si­tions, as will telemedicine pro­grams, Jef­f­coat said. The new St. Alphonsus sys­tem also will fo­cus on re­cruit­ing more pri­mary-care physi­cians to those hos­pi­tals, she added.

In At­lanta, four-hospi­tal Pied­mont and St. Joseph’s said “the rapidly chang­ing land­scape of health­care” prompted the deal. St. Joseph’s, which op­er­ates 410-bed St. Joseph’s Hospi­tal, will con­tinue to fol­low Catholic re­li­gious and eth­i­cal di­rec­tives, but Pied­mont fa­cil­i­ties that are not part of the joint op­er­at­ing com­pany would not be sub­ject to them, ac­cord­ing to a news release. This flex­i­bil­ity with joint op­er­at­ing agree­ments is one rea­son that this deal struc­ture has seen a re­vival (July 16, 2007, p. 6).

Knapp Med­i­cal Cen­ter, above, is form­ing a new sys­tem with Val­ley Bap­tist.

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