Not-for-profit sector sees three deals move forward
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.