With Columbia/HCA Healthcare Corp. hot on the trail to acquire not-for-profit hospitals, the innovative partnership deal that brought Winter Park (Fla.) Memorial Hospital into the Columbia fold this month is expected to become a model for some facilities.
Experts say the technique may be used by not-for-profit facilities elsewhere that want to sell but also seek to retain some community oversight of their institutions.
The Winter Park transaction, in which Columbia acquired a 50% interest in the hospital's plant, property and equipment for $25 million in cash and other considerations, was the second such deal Columbia completed with a not-for-profit hospital. Last year, Columbia acquired half of the assets of Cedars Medical Center in Miami (Feb. 22, 1993, p. 10).
Less than one week after the Winter Park deal was completed, Columbia made a similar agreement with Rapides Regional Medical Center in Alexandria, Va. (March 14, p. 16).
A trend."I'd like to do this in everymarket where a not-for-profit board doesn't want to sell (its) hospital," said Rick Scott, Columbia's president and chief executive officer.
Through acquisitions of other investor-owned chains, Columbia has grown to be the nation's largest healthcare conglomerate in the past five years, with 197 hospitals and annual revenues of more than $10 billion.
Now, however, Columbia appears to be targeting not-for-profit hospitals as part of its strategy to form regional networks for managed-care contracting.
In the partnership deal with Winter Park, Columbia paid $25 million for a 50% interest in the Winter Park Healthcare Group, the limited partnership that will oversee the 339-bed hospital (see chart).
When the deal was completed on March 3, Winter Park Hospital became a for-profit hospital with Columbia as its managing general partner. The Winter Park Hospital Association, the facility's former not-for-profit parent, is its limited partner.
Winter Park now is the flagship hospital of Columbia's four-hospital network in Orlando, called Columbia Park Healthcare System. It's Columbia's fourth division in Florida, where Columbia controls 47, or about 20%, of the state's medical-surgical hospitals.
As part of the arrangement, Joseph Swedish, 42, was appointed president of Columbia Park; he had been president and chief executive officer of Winter Park.
The Columbia Park network includes Winter Park; 226-bed Central Florida Regional Hospital in Sanford; 267-bed Lucerne Medical Center in Orlando; and 169-bed Osceola Regional Hospital in Kissimmee.
Two steps beyond.While
HealthTrust-The Hospital Co. has struck at least two similar deals with not-for-profit hospitals, Columbia has taken the idea two important steps further.
Columbia's three partnership deals involve cash payments to the not-for-profit hospitals' parent organizations. After the parent retires its debt, any remaining funds are designated for charitable purposes through the not-for-profit's foundation.
The second step is Columbia's partnership arrangement; for example, that includes offering stock options to physicians on the Winter Park medical staff, which then can invest in as much as 20% of the hospital partnership.
Winter Park and Columbia will share profits. In 1993, Winter Park posted net income of $3.3 million on total revenue of $89.5 million, said Louis Seifert, Columbia Park's chief financial officer.
In structuring the deal as a partnership, Columbia reaps two other benefits, said Barry Sagraves, manager of mergers and acquisitions for John Nuveen & Co., a Chicago-based investment banking firm.
"The major advantage to Columbia is that it becomes the general partner but doesn't have to pay 100% of the purchase price. It frees up capital," he said. "The other is a partner approach gets people to talk with you about selling."
For Columbia, the partnerships will be more cumbersome to govern than total ownership, Mr. Sagraves said. That's because some key decisions require a supermajority vote of the 20-member partnership board.
For example, if Winter Park wants to assume more than $10 million in debt, eight of the 15 not-for-profit-appointed trustees on the Winter Park board must vote in favor along with three of the five Columbia-appointed trustees.
Besides Columbia's $25 million payment for a 50% interest in the hospital, the deal also involved another $4.2 million that Columbia paid to the association to reimburse it for excess working capital, Mr. Seifert said.
Winter Park Hospital Association used part of the money to retire the hospital's debt of $12.6 million.