Ale­gent ex­pands its clout

Creighton deal swells Omaha’s dom­i­nant sys­tem

Modern Healthcare - - REGIONAL NEWS - Beth Kutscher

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.

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