Unique joint ven­ture could be sign of more to come

Modern Healthcare - - Front Page - Vince Gal­loro

Is Duke’s unique joint ven­ture with LifePoint a bell­wether?

Duke Uni­ver­sity Health Sys­tem and LifePoint Hos­pi­tals might be the first aca­demic med­i­cal cen­ter and in­vestor-owned hos­pi­tal com­pany to form a joint ven­ture to ac­quire hos­pi­tals, but they don’t seem likely to be the last.

Duke, Durham, N.C., and LifePoint, Brent­wood, Tenn., said last week that their ven­ture, mem­o­ran­dum of un­der­stand­ing to pur­chase an 80% stake in tax-ex­empt Maria Parham Med­i­cal Cen­ter, Hen­der­son, N.C. Maria Parham would re­tain a 20% in­ter­est; gov­er­nance would be split 50-50. More spe­cific terms were not dis­closed. Dr. W. Bev­erly Tucker, chair of Maria Parham’s board, said the com­bi­na­tion of Duke and LifePoint made that own in­di­vid­ual fa­cil­i­ties. HCA and Van­guard Health Sys­tems, both based in Nashville; Tenet Health­care Corp., Dal­las; and Uni­ver­sal Health Ser­vices, King of Prus­sia, Pa., have joint ven­tures to op­er­ate hos­pi­tals with uni­ver­si­ties in New Or­leans; Chicago; Omaha, Neb.; and Washington, re­spec­tively.

In an­other sign that scale is be­com­ing more im­por­tant, three county-owned hos­pi­tals in South Carolina an­nounced that they would com­bine their op­er­a­tions at a new hos­pi­tal to be built by a health­care man­age­ment firm and a pri­vate eq­uity firm, ac­cord­ing to a news re­lease.

Pon­der’s Atchi­son said that deal is an­other sign of the in­ter­est that pri­vate eq­uity firms have in con­vert­ing tax-ex­empt hos­pi­tals into in­vestor-owned hos­pi­tals, some­thing made most clear last year in the ac­qui­si­tion of Car­i­tas Christi Health Care by Stew­ard Health Care Sys­tem, owned by Cer­berus Cap­i­tal Man­age­ment. Pon­der has re­ceived calls pe­ri­od­i­cally from pri­vate eq­uity firms that want to in­vest in hos­pi­tals, and Atchi­son said he is aware of an­other po­ten­tial tax-ex­empt con­ver­sion in­volv­ing pri­vate eq­uity. Again, he said he could not di­vulge de­tails.

Un­like many hos­pi­tals that are look­ing for a part­ner for a joint ven­ture or an out­right sale, Maria Parham is on a solid fi­nan­cial foot­ing and doesn’t have ma­jor cap­i­tal needs, said Bob Sin­gle­tary, pres­i­dent and CEO of Maria Parham. For its fis­cal 2010, which ended Sept. 30, Maria Parham recorded an op­er­at­ing in­come of $681,192 af­ter break­ing even on op­er­a­tions in fis­cal 2009, ac­cord­ing to its au­dited fi­nan­cial state­ments. Its fis­cal 2010 net in­come was $1.2 mil­lion, more than dou­ble fis­cal 2009’s $458,394. Net pa­tient ser­vice rev­enue was $92.3 mil­lion and to­tal rev­enue was $94.4 mil­lion in fis­cal 2010.

The hos­pi­tal added a five-story pa­tient tower with 130,000 square feet of space and ren­o­vated about 46,000 square feet in a project for which it sold $50.8 mil­lion in bonds in 2003, ac­cord­ing to a bond dis­clo­sure.

“Cap­i­tal was not the biggest driver of the need to af­fil­i­ate,” Sin­gle­tary said. “It was qual­ity and man­age­ment re­sources to han­dle all the reg­u­la­tory and other pres­sures on com­mu­nity hos­pi­tals.” Be­sides the cen­tral­ized ser­vices that Car­pen­ter men­tioned, Sin­gle­tary also cited the abil­ity to use mar­ket­ing cam­paigns that LifePoint has de­vel­oped for dif­fer­ent ser­vice lines.

Maria Parham has some gaps in its med­i­cal staff, and the re­cruit­ment skills of LifePoint and the lure of clin­i­cal af­fil­i­a­tion with Duke should help fill those gaps, Tucker said. The hos­pi­tal also would like to draw on LifePoint’s ex­pe­ri­ence with man­ag­ing em­ployed physi­cians, as that is be­com­ing more preva­lent, Sin­gle­tary added.

Maria Parham is the first ac­qui­si­tion planned by DLP Health­care, a joint ven­ture be­tween Duke Uni­ver­sity Health Sys­tem and LifePoint Hos­pi­tals.

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