A deal pending in Virginia contains several twists on the Columbia/HCA Healthcare Corp. acquisition archetype. This time, the targeted not-for-profit system is negotiating from a position of strength and hopes to reap the benefits of a link with the national for-profit giant without giving up its tax-exempt status or selling Columbia an equity stake in its four hospitals.
Columbia and Riverside Health System in Newport News, Va., are within days of reaching a decision on whether to form a joint venture, said Nelson L. St. Clair, Riverside's president and chief executive officer. "I'm impatient and would like to get on with this," he said.
St. Clair said details of the link have yet to be hammered out. However, he said all four of Riverside's not-for-profit hospitals would be involved and that Columbia will not be buying an interest in the system. "Columbia will not be buying anything," he said.
"This is going to be a very unique agreement," said Kathleen O'Connell, a partner with Ernst & Young, who has been consulting hospitals in the area that could be affected by the deal. "It's far from being a distress sale. It will serve as a model for agreements in other marketplaces between strong players."
O'Connell explained that the union will give Columbia access to managed-care products and services in the state. "It will be a considerable enhancement to its hospital provider network," she said.
Riverside doesn't need Columbia to bail it out of financial trouble. "We looked at our situation and decided that it was not in our best interest to sell at this time," St. Clair said, noting the strong financial health of the four hospitals in the not-for-profit system.
According to the Virginia Health Services Cost Review Council, Riverside earned net income of $45 million on revenues of $414.6 million in 1993, making it the most profitable system in Eastern Virginia.
While financial necessity may not be a motive, St. Clair said an agreement with Columbia would provide Riverside with access to Columbia's infrastructure of information systems, purchasing networks and quality assurance programs. In addition, he said, Columbia has a strong foothold in the nearby Richmond market, where the national for-profit system owns five hospitals. A deal with Columbia "looks like a natural tie-in," he said.
Pursuing an agreement that stops short of a merger or sale would protect the system's tax-exempt status, St. Clair said. "If we have the opportunity, we might as well protect it (tax-exempt status) as long as we can."
Paul Boynton, executive director of the Eastern Virginia Health Systems Agency, has been leading opposition to the talks. Boynton argued that Columbia has the most to gain from an agreement with Riverside, which he fears could lead to an outright acquisition down the road. "There's no need for Columbia to come in," he said. "Columbia has realized that it needs some cash cows. They'll use the profits from Riverside to offset their losses elsewhere."