MedCath plans to dissolve
MedCath Corp. executives last week made it official: The shrinking for-profit heart-hospital chain is trying to go out of business. The Charlotte, N.C.-based company, which has been shedding assets at a quick pace, announced that it would ask shareholders in an upcoming proxy filing for approval to sell off its remaining hospitals without seeking further shareholder approval and distribute the proceeds. MedCath also said it would seek shareholder approval of definitive agreements to sell two of its six affiliated hospitals, Arkansas Heart Hospital in Little Rock and Heart Hospital of New Mexico in Albuquerque.
The publicly traded company’s decision to get out of the heart hospital business was driven in part by cardiologist groups across the country selling to hospitals, creating a less-attractive mar- ket for standalone heart hospitals and because of difficulties negotiating attractive insurer contracts (Sept. 6, 2010, p. 18). MedCath executives did not return calls for comment.
The MedCath deals announced last week reflect different responses to those pressures. The 112-bed Arkansas Heart Hospital will be merged with a 17-physician cardiology group, Little Rock Cardiology Clinic, while 55-bed Heart Hospital of New Mexico will be subsumed by a nearby hospital.
Dr. Bruce Murphy, an investor in Little Rock Cardiology and, through AR-MED, the purchaser of MedCath’s stake in the Arkansas hospital, said the deal will keep what is a profitable hospital under local control. Other potential buyers were real estate investment trusts, and “their interests were not necessarily our interests,” he said.
A casualty of the agreement will be Murphy’s medical license, which he said he plans to give up in order to take ownership of the hospital under the tighter restrictions of the Patient Protection and Affordable Care Act. “This is certainly not the choice I would pick if I had to choose,” he said.
Meanwhile, Lovelace Health System plans to merge the Albuquerque hospital with 162-bed Lovelace Medical Center. David Vandewater, president and CEO of Ardent Health Services, Nashville, Lovelace’s for-profit parent, said the deal makes sense because the heart hospital is “doing well” and is next door to Lovelace.
The Arkansas Heart Hospital deal values the hospital at $73 million plus a percentage of available cash, with MedCath expected to net $60 million. The Heart Hospital of New Mexico agreement values the facility at $119 million. The company that currently owns the hospital is 74.8% owned by MedCath, which will receive about $62 million in net proceeds on the sale, according to MedCath.
MedCath said this month that it sold six hospital-based catheterization labs and three mobile catheterization labs to a joint venture between Duke University Health System, Durham, N.C., and LifePoint Hospitals, Brentwood, Tenn., in a deal valued at $25 million and netting MedCath $16 million. In a related transaction, MedCath sold its 9% ownership interest and management agreement in Coastal Carolina Heart to New Hanover Regional Medical Center, Wilmington, N.C., netting MedCath $4 million.