OrNda HealthCorp last week shuffled its mix of hospitals by agreeing to buy a three-hospital system in Phoenix and sell three facilities in Tennessee and Texas.
The Nashville, Tenn.-based chain of 46 hospitals intends to beef up its Phoenix network with the purchase of St. Luke's Health System for $122 million. The not-for-profit system includes 214-bed St. Luke's Medical Center, 110-bed Tempe (Ariz.) St. Luke's Hospital, 88-bed St. Luke's Behavioral Health Center and 55-bed St. Luke's Skilled Nursing Facility.
OrNda now owns two community hospitals in Phoenix and one in Tucson. In addition, OrNda and St. Luke's each operate Medicaid HMOs in Phoenix, with total enrollment of 35,000.
When the St. Luke's acquisition is completed early next year, the Phoenix system will account for about 15% of OrNda's revenues, said Keith Pitts, the company's chief financial officer.
The price is about six times St. Luke's earnings before interest, taxes minority interests, depreciation, and amortization, a formula frequently used to value hospital acquisitions. Most of OrNda's other recent acquisitions have been comparable, according to Edward Mally, Citicorp's high-yield bond analyst.
St. Luke's had suffered financial problems in the mid-1980s and was managed for two years by another Phoenix system, St. Joseph's Hospital and Medical Center. That arrangement ended about six years ago and, in 1991, St. Luke's regained profitability, said Terry Ashoff Johnson, a corporate vice president.
Two years ago, the system decided to look at integration strategies and decided it didn't have enough cash to buy other hospitals. St. Luke's downtown medical center is a tertiary-care facility that will fit well into OrNda's network, Ms. Johnson said.
St. Luke's board was expected to vote on OrNda's proposal late last week.
OrNda last week also reported a year-end loss, which included a $35 million charge for its recent sale of a Decatur, Ga., hospital and its pending sale of three hospitals. The four hospitals ac-counted for a combined loss of $7 million in the fiscal year ended Aug. 31. OrNda will sell 100-bed Gibson General Hospital, Trenton, Tenn., to Jackson-Madison County General Hospital, Jackson, Tenn.; 112-bed Lewisburg (Tenn.) Community Hospital to Maury Regional Hospital, Columbia, Tenn.; and 146-bed Pasadena (Texas) General Hospital to Touchstone Healthcare, a Brentwood, Tenn., chain of three hospitals. After the sales, OrNda will no longer have hospitals in Tennessee.
For the year, OrNda reported a net loss of $61.2 million, or $1.62 per share, compared with net income of $8.1 million, or 23 cents per share, in the previous fiscal year. The loss included nonrecurring and extraordinary losses of $90 million. Revenues grew 33% to $1.3 billion.
For the fourth quarter, the company reported a net loss of $28.6 million, or 66 cents per share, compared with a net loss of $1.4 million, or 4 cents per share, in the year-ago period. Revenues rose 51% to $391.4 million.
However, OrNda executives said the company made a profit on continuing operations. It reported $11 million in net income during the fourth quarter and $29 million for the year.