Did Healthtrust-The Hospital Co. pay too much for Nashville Memorial Hospital, or was it a steal?
That's the question that arose recently when Healthtrust executives apparently began telling some sources that the company paid about $50 million for the 300-bed hospital. A $50 million price estimate also appeared last month in Irving Levin Associates' Healthcare Mergers and Acquisitions report (July 25, p. 4).
However, if Healthtrust did pay $50 million for the hospital, that's considerably less than the $108 million price tag that was widely reported last spring. At that time, the deal also sparked an investigation by the state's attorney general and a lawsuit from Nashville Memorial's chief competitor, Tennessee Christian Medical Center (March 21, p. 16).
Now there are reports that nearly half the $108 million was actually contributed by Nashville Memorial from cash reserves.
As more hospitals become involved in mergers and acquisitions, purchase prices-which often are kept closely guarded-are becoming more important and more closely analyzed in the market.
In the case of Madison, Tenn.-based Nashville Memorial, a $108 million purchase price would have translated into 9.2 times EBITDA-or earnings before interest, taxes, depreciation and amortization-based on 1993 figures provided by HCIA, a Baltimore-based healthcare information company. Multiples of EBITDA are often used by investor-owned companies to value hospitals (May 30, p. 25). That would have been fairly high because many investor-owned chains say they typically pay four to seven times EBITDA.
However, if Nashville, Tenn.-based Healthtrust paid only $50 million for Nashville Memorial, that translates into 4.2 times EBITDA for 1993.
Nashville Memorial did even better in 1992, however, with $13.5 million in EBITDA, which would have given the purchase price a multiple of just 3.7.
Healthtrust has never publicly revealed how much it paid for the hospital. In an April 1 press release, the 115-hospital chain said the transaction resulted in a new foundation with $108 million in assets.
Last week, Healthtrust spokeswoman Paula Lovell reaffirmed that the company does not reveal the prices it pays for hospitals and would not confirm that Nashville Memorial may have put up half the purchase price itself. When asked about the $108 million figure, she said it was released by Nashville Memorial's board because "the local community wanted to know what they were going to get out of it."
However, what may not have been clear was that cash-rich Nashville Memorial was putting up nearly half the asset figure itself.
That information is important, especially because Nashville Memorial was a community-owned hospital, said Paul Ney, attorney for Tennessee Christian Medical Center, which competes with Nashville Memorial in Madison. "Most people would have inferred that $108 million was the purchase price, when in fact almost half of that already existed," he said.
Documents obtained from the attorney general's investigation of the deal show that Healthtrust made a cash payment of $55 million, Mr. Ney said.
Tennessee Christian had tried to buy Nashville Memorial for $110 million, including the cash reserves, and hospital executives said they would have increased that bid if Nashville Memorial's board had released the hospital's financial figures for analysis. However, the offer never went any further.
"They (Healthtrust) got a steal," said Milton Siepman, president and chief executive officer of Tennessee Christian. "I'd buy (Nashville) Memorial for $50 million tomorrow; I'd buy it for $65 million tomorrow."
Tennessee Christian tried to fight the sale in court, but the Davidson County Chancery Court ruled the hospital lacked standing in the case. Tennessee Christian is appealing to the Tennessee Court of Appeals.