COLUMBIA: Sells 22 Hospitals To Nonprofit Consortium
Columbia/HCA Healthcare Corp. closed a $1.2 billion deal Tuesday to sell 22 hospitals in its Atlantic division to a consortium of eight non-profit hospitals in four Southern states, marking the "largest purchase ever by not-for-profit health care organizations of hospitals and facilities" (Columbia release, 5/19). The transaction included "acute care, rehabilitation and psychiatric hospitals in Alabama, Kentucky, North Carolina and Tennessee. Prices for individual hospitals were not disclosed," the St. Petersburg Times reports (Hundley, 5/20). The Wall Street Journal called the deal a "major turnabout for the once-aggressive acquirer and a significant step toward restructuring itself as a smaller, less combative player." The sale could denote the beginning of Columbia's breakup, the Journal reports -- a dissolution prompted by a federal probe into possible Medicare fraud and "extraordinary hostility from communities where it had sought to dominate in health care" (Lagnado, 5/20). Industry analysts called the transaction "a dramatic turnabout" in the health care industry, noting that the sale marks the shift of non-profit hospitals from sellers to buyers, the St. Petersburg Times reports. "It's a real sea change," said David Cyganowski, co-head of Salomon Smith Barney's health care group, which helped organize the non-profit consortium. "Only a year ago, all you read about was for-profits buying not-for-profit hospitals. Now we're starting to see investor-owned assets returned to the community" (5/20).
Starting To Shrink
The Wall Street Journal reports that Columbia said it will use the proceeds from the sale to pay off a portion of its $8.7 billion debt, "including $4 billion in bank debt." Analysts said Columbia eventually will spend more than $1 billion to "clear up its legal problems." Columbia curtailed its rapid expansion last summer and plans to reduce its holdings from 330 hospitals and $20 billion in annual revenue to about 200 hospitals and $15 billion in annual revenue (5/20). The 22 hospitals involved in the deal were in communities where Columbia had been unsuccessful in its attempt to build a significant market share, the St. Petersburg Times reports (5/20). "These hospitals are better off, and we as a company will be stronger and more focused," said Columbia President and COO Jack Bovender Jr. Columbia's hope, he added, was that any hospitals it sold "would end up in good, strong situations" (Wall Street Journal, 5/20). Columbia CEO Dr. Thomas Frist Jr. added that the "move is the right thing to do for these communities. It is also another positive step forward in completion of the company's strategic reorganization" (Columbia release, 5/19).
The nonprofit consortium is comprised of Baptist Health, Montgomery, AL; Eliza Coffee Memorial Hospital, Florence, AL; Alliant Health Care System, Louisville, KY; Duke University Health System, Durham, NC; New Hanover Regional Medical Center, Wilmington, NC; Novant Health, Winston-Salem, NC; Pitt County Memorial Hospital, Greenville, NC; and Johnson City Medical Center Hospital, Johnson City, TN (St. Petersburg Times, 5/20). Presbyterian Orthopaedic Hospital in Charlotte, NC, already was jointly owned by Columbia, the Winston-Salem Journal reports (Zerwick, 5/20).
Turning The Tables
"We're very encouraged that these hospitals have been returned to their communities and now have some stability after going through so many ownership changes," said Elliott Moore, president of the Hospital Alliance of Tennessee, an association of nonprofit hospitals. "But the bigger picture is that this is the first time not-for-profit hospitals from several different states have come together and put enough money on the table to influence Columbia to sell to not-for- profits. I think we'll see more of it" (St. Petersburg Times, 5/20). Sheryl Skolnick, an analyst at BancAmerica/Robertson Stephens, said the "balance of power has clearly shifted," adding that nonprofits are demonstrating with this deal "not simply their buying power but their staying power" (Wall Street Journal, 5/20).
Expansion At Duke
Duke University Health System's purchase of Raleigh Community Hospital was "another victory in its aggressive expansion campaign," the Raleigh News & Observer reports. "Duke wants to have a presence in this attractive market. And [Raleigh Community Hospital] is doing well," said Raleigh Community CEO Jim Raynor. Raleigh Community admitted 6,400 patients last year and provided outpatient services to 44,000 patients at clinics on its campus, the News & Observer reports. "I don't feel like we're being gobbled up," said Raleigh Community Medical Center's Dr. P.G. Fox. "There's always apprehension when there's a change. They have reassured us it's not going to be an influx of Duke physicians." The sale comes on the heels of "Duke's recent coup in winning" a long-term lease yet to be finalized to operate Durham Regional Hospital and its investment in "a wide range of health-related operations in central North Carolina, including a home health agency, a hospice and its own HMO" (Clabby/Obermayer, 5/20).