Arizona's largest health system agreed to an $87 million deal for Casa Grande (Ariz.) Regional Medical Center, which filed for Chapter 11 bankruptcy Feb. 4.
Banner Health, which owns and operates two dozen hospitals in seven states, would acquire Casa Grande Regional's assets and certain liabilities, the distressed hospital's court records show. The deal must be approved by the court.
The deal follows failed efforts by Casa Grande to raise cash, refinance its debt and make one prior attempt at a “strategic partnership” with a for-profit chain, the bankruptcy court records show.
Casa Grande Regional cited a cut to Arizona's Medicaid reimbursement and eligibility as one reason for bankruptcy, including the state's 2011 decision to halt Medicaid enrollment for childless adults. Medicaid accounts for roughly 21% of the hospital's revenue. The policy changes cut the hospital's revenue by $11 million from 2011 to 2013, according to court records.
The hospital closed its books on fiscal 2013 last June with $100.3 million in revenue and an operating loss of $13.4 million. Lower Medicare payments that began last year under a federal deficit reduction deal also contributed to the hospital's financial decline, the records showed.
Banner was one of four bidders on the hospital and was selected for its financial strength and not-for-profit mission, the court records said.
The health system reported operating income of $298.5 million on revenue of $4.9 billion in 2012, the most recent financial data available. For the first nine months of 2013, Banner Health reported operating income of $196.1 million on revenue of $3.8 billion.
In December, Banner loaned 187-bed Casa Grande Regional $3.3 million for operations and pledged another
$6.2 million in financing, which the hospital said was critically needed to pay salaries, medical supply vendors and other operating costs. If the deal closes, the loans will be forgiven.
Banner executives will meet in coming weeks with the distressed hospital's doctors and employees, according to a news release on the deal. Follow Melanie Evans on Twitter: @MHmevans
The California Hospital Association is preparing for a fight as the state's largest healthcare union moves to introduce a ballot initiative that would cap the prices hospitals can charge.
The Service Employees International Union-United Healthcare Workers West, known as SEIU-UHW, launched an extensive outreach effort last week to collect signatures from at least 505,000 registered voters. The Fair Healthcare Pricing Act of 2014 would prohibit hospitals from charging more than 25% above the actual cost of providing care. The SEIU is also seeking to cap not-for-profit CEO salaries at $450,000.
The campaign includes television ads in Sacramento, a public relations push and 500 paid signature gatherers. Six state legislators have already endorsed the initiative, and the SEIU says it has a third of the necessary signatures.
The SEIU must submit the signatures by mid-April to qualify the initiative for the November ballot.
The CHA, meanwhile, estimates that a price cap would severely harm its members, costing hospitals about $12 billion a year and resulting in 50,000 lost jobs. The group has set aside $10 million for its own campaign, Californians Against Initiative Abuse.
The SEIU collected signatures for a similar ballot initiative two years ago but reached an agreement with the CHA at the eleventh hour to work collaboratively on such issues as rising healthcare costs and chronic disease management.
The agreement also stated that the SEIU hoped to gain 100,000 additional members by 2015. But the CHA has limited power to help the SEIU unionize hospital workers and the union's effort has faltered, said Jan Emerson-Shea, the association's vice president of external affairs.
“We were working together in good faith,” she said. “This is all about pressuring hospitals to capitulate to their demands.”
Dave Regan, president of the SEIU-UHW, said the parties have seen some modest success in working together, but the union doesn't believe hospitals have shown a commitment to lowering costs.
“Honestly, we just felt like we weren't making enough progress,” he said. “We made the choice that we want to go directly to the voters.”
Hospitals often point to labor costs as one of their largest line item expenses, at more than 50% of revenue. Asked why the SEIU was going after hospital earnings, Regan said creating quality healthcare jobs is not incompatible with holding down prices.
The union has pointed to data from the Office of Statewide Health Planning and Development to show that California hospital charges reached $233.8 billion in 2012, more than four times higher than their operating expenses. Follow Beth Kutscher on Twitter: @MHbkutscher