Alegent expands its clout
Creighton deal swells Omaha’s dominant system
With a deal in place to acquire nearby Creighton University Medical Center, Alegent Health could soon increase its dominance in the Omaha, Neb., market. The takeover would consolidate four major hospital players into three and give Alegent roughly half of the adult acute-care market.
Alegent, part of Catholic Health Initiatives, announced last week that it was acquiring the medical center from Creighton University and Tenet Healthcare Corp., Dallas. A Tenet news release said the sale transaction price is expected to be about $63 million, and the deal is expected to close in the second quarter.
Publicly traded Tenet has held a 74% stake in a limited liability company that operates 334-bed Creighton University Medical Center since 1995. Creighton University holds the remaining 26%. Both parties are selling their stakes in the limited liability company.
“The university will no longer be in the hospital business,” said Kim Manning, a spokeswoman for Creighton, who noted that the university’s health sciences schools will continue to manage academic components. The primary teaching sites for those programs will be at Alegent.
Alegent will also take over operations of Creighton’s physician group, Creighton Medical Associates, and plans to integrate them into Alegent Health Clinic.
Creighton University and Alegent will make matching contributions to a strategic investment fund, and Alegent will also make an annual financial contribution to Creighton’s health sciences schools.
Alegent is the dominant player in Omaha with roughly 44% of the adult acute-care market, according to John Holdenried, a healthcare attorney at Baird Holm. It operates 305-bed Bergan Mercy Medical Center, 113-bed Immanuel Medical Center and 157-bed Lakeside Hospital. Creighton has about 6% to 7% of the market, he noted, and the remainder is shared by 460-bed Methodist Hospital and 531bed Nebraska Medical Center. The 202-bed Omaha VA Medical Center also takes a share of the city’s patients.
Yet Carl Bowman, a healthcare attorney at Stinson Morrison Hecker, noted that the deal combines Creighton’s emphasis on specialty care with Alegent’s focus on primary care. Alegent could also expand Creighton’s teaching program to the rural populations it treats in the state.
“Omaha has always been very competitive in terms of healthcare,” Bowman said. “I think it would be difficult for Alegent to gain enough market share to be anti-competitive.”
The Federal Trade Commission has challenged three hospital deals in the past 15
months, recently prompting two systems to abandon a merger in Rockford, Ill. (April 16, p. 8). Kelly Grinnell, a spokeswoman for Alegent, said the Creighton acquisition does not meet the threshold for premerger antitrust review by the FTC under the HartScott-rodino Act.
The deal also comes at a time when Nebraska has been tightening its belt; the state’s biennial 2011-13 budget included a 2.5% rate cut to Medicaid providers. According to Tenet’s 2011 year-end financial report, its Medicaid-related patient revenue for the year declined to $22 million in Nebraska from $24 million in 2010. For 2012, Tenet said it expected the hospital, its only facility in the state, to break even with about $190 million in revenue.
“As Omaha has evolved and changed over time, we find ourselves faced with many chal- lenges that are impacting healthcare and academic organizations across the country,” said Gary Honts, president and CEO of Creighton University Medical Center, in a statement. “For this hospital and our patients, the best course of action is to become part of an integrated regional system, and we believe Alegent is the right partner.”
Manning noted that work groups will meet in the coming weeks to make decisions about governance and operational issues.
Ties between Creighton and Tenet date back to 1984, when American Medical International, now part of Tenet, paid $100 million to acquire St. Joseph Hospital and the St. Joseph Center for Mental Health; St. Joseph Hospital changed its name to Creighton University Medical Center in 2002. A legal dispute more than a decade later ultimately led to the creation of the limited liability company and the current deal structure.
Alegent President and CEO Richard Hachten and the Rev. Timothy Lannon, president of Creighton University, shake on the deal.