HUNGRY BEHAVIORAL BUCKS PSYCHIATRIC MARKET TREND
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October 28, 1996 12:00 AM

HUNGRY BEHAVIORAL BUCKS PSYCHIATRIC MARKET TREND

Lisa Scott
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    Behavioral Healthcare Corp. of Nashville, Tenn., still has an appetite for expansion despite its agreement last week to buy 25 psychiatric hospitals from a chain ready to leave the business.

    In most markets, psychiatric lengths-of-stay have hit bottom after years of pressure from payers, said Chuck Elcan, assistant vice president of development for Behavioral.

    The industry is rebounding in some areas, and it should be helped by a new federal law requiring more coverage for mental health, Elcan said. Under the law, signed in August, insurers cannot set lower expense limits for mental health than for other medical care.

    Behavioral will pay $60 million in cash and $70 million to $105 million in stock for the 25 psychiatric hospitals. With the new facilities, it will become the nation's second-largest psychiatric hospital chain. It also is negotiating additional acquisitions, Elcan said.

    The hospitals' current owner, Community Psychiatric Centers of Las Vegas, announced plans to leave the business last year (Jan. 1, p. 27). It will retain 14 hospitals and rename itself Transitional Hospitals Corp.

    Community also is hungry for growth. It will open two hospitals this year. In addition, Community executives said they expect to open a new long-term or transitional hospital every eight to 10 weeks next year.

    Community, a public company, will acquire 62% of Behavioral stock in the transaction. It plans to release 42% of the shares on the stock market, taking Behavioral public, when it's most advantageous to the company and stockholders. It will retain a 20% stake in Behavioral.

    The new Behavioral will operate 38 hospitals in 18 states with annual revenues of $309 million. The only larger psychiatric chain is Magellan Health Services of Atlanta, with 100 hospitals and $1 billion in annual revenues.

    Several executive changes will occur as a result of the deal. Richard Conte, Community's chairman and chief executive officer, will become chairman of Behavioral, and two other Community executives will join its management team. They also will be added to the board, bringing its membership to 11.

    Behavioral's founder, Edward Stack, will remain CEO.

    The transaction is expected to close Nov. 30, provided it receives regulatory clearance. Executives said they do not anticipate any antitrust troubles.

    Owning additional hospitals will give Behavioral more leverage with payers and allow it to gain advantages from consolidation, Elcan said.

    Behavioral will operate 16 hospitals in California after the deal, picking up 12 from Community. It also will add two hospitals in Texas, bringing its total to four in that state.

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