Horizon/CMS Healthcare Corp. has agreed to sell its interest in four acute rehabilitation hospitals and 11 clinics in California to Regency Health Services.
Albuquerque, N.M.-based Horizon said last week it will receive $36.3 million in cash and $7 million in promissory notes for the hospitals and outpatient rehabilitation clinics. Two of the hospitals are joint venture with local acute-care facilities.
"In deciding to sell our acute rehabilitation hospital operations and related assets in California, we recognized that the company does not have a significant presence in post-acute care in that state," said Neal M. Elliott, Horizon's chairman and chief executive officer.
The company said the facilities being sold had lower operating margins than its hospital division as a whole and that the sale "should have a positive effect on the operating margins of this division as a whole."
Regency, a nursing home operator based in Tustin, Calif., made the deal to expand its long-term-care offerings. Executives believe the deal will make Regency more attractive to managed-care companies, which like to contract with providers that offer a wide range of services.
Regency also hopes the deal, expected to close by year-end, will help it decrease its dependence on Medi-Cal money. Medi-Cal, California's Medicaid program, frequently pays for nursing home stays and is trying to slash costs throughout the state, putting Regency's reimbursements in jeopardy.
The agreement included the sale of Robert H. Ballard Rehabilitation Hospital in San Bernardino; Rehabilitation Hospital of San Diego; San Joaquin Valley Rehabilitation Hospital in Fresno; and Meridian Neuro Care in Newport Beach.
Money from the sale was expected to pay off part of Horizon's outstanding debt.
Horizon would be left with 34 acute rehabilitation hospitals in 16 states, 58 specialty hospitals and subacute-care units in 17 states, 280 outpatient rehabilitation clinics in 25 states and 1,800 rehabilitation therapy contracts in 35 states, the company said.
Also last week, Horizon agreed to acquire Pacific Rehabilitation and Sports Medicine for about $56 million plus assumed debt. Horizon said it will pay $6.50 a share in cash to Pacific Rehab's stockholders as proposed in earlier discussions (Nov. 4, p. 16). That deal will give Horizon its first clinics in Hawaii, Maryland, Mississippi and Oregon.