The major psychiatric chains spent most of the past year on reorganization instead of shopping sprees, MODERN HEALTHCARE's 1997 Multi-unit Providers Survey shows.
The number of facilities operated by the 62 responding healthcare systems that run freestanding psychiatric hospitals rose 17% to 324 from 277 in 1995. The total number of psychiatric hospital beds grew 12% to 28,362 from 25,405 in 1995.
Secular not-for-profit systems led the growth, increasing the number of their facilities 29% to 22 from 17 in 1995. For-profit companies increased their psychiatric holdings by 19% and public companies by 14%. Roman Catholic and other religious systems saw their psychiatric facilities drop 25% to 12 from 16 in 1995.
While the number of transactions among other healthcare providers shot up during 1996, the mergers and acquisitions pace of psychiatric hospitals slowed. Psychiatric hospitals announced 35 transactions in 1996, a drop of 26% from 47 in 1995, according to Irving Levin & Associates, a New Canaan, Conn.-based research firm.
Active players. Nashville-based Behavioral Healthcare Corp. showed the most acquisition activity, rising to No. 2 this year from No. 10 in last year's survey rankings. Behavioral proved more than happy to help companies unload their psychiatric baggage so they could focus on other priorities. Behavioral ended 1996 with 42 hospitals, compared with only nine in 1995.
In December 1996, Behavioral acquired all 25 psychiatric hospitals from Las Vegas-based Community Psychiatric Centers for $60 million in cash and $70 million in stock. The deal took CPC, which filled the No. 2 slot last year, out of the psychiatric hospital game and left it to focus on long-term acute care under the new name Transitional Hospitals Corp.
Earlier in 1996, CPC had completed the $97 million sale of its Priory Hospitals Group, the largest private provider of acute psychiatric services in the United Kingdom. The group's 15 facilities were purchased by a London-based company.
Behavioral also helped pick clean Mental Health Management of McLean, Va. Mental Health sold five of its seven freestanding hospitals to Behavioral for $10 million in cash and a note for $2 million. Mental Health sold a sixth hospital to an unnamed buyer, holding onto only one Colorado psychiatric facility and its physician practice management business. Behavioral also acquired four mental health systems from United Psychiatric Group of Washington, D.C., for undisclosed terms.
Among acute-care hospital companies with psychiatric holdings, King of Prussia, Pa.-based Universal Health Services acquired four psychiatric hospitals from First Hospital Corp. of Norfolk, Va., for $33.5 million.
Meanwhile, Nashville-based Columbia/HCA Healthcare Corp. ended 1996 with 22 psychiatric hospitals, three fewer than in 1995, as a result of consolidations.
Leader of the pack. The nation's largest psychiatric hospital chain, Atlanta-based Magellan Health Services, started out the year with a fresh face, having recently changed its name from Charter Medical Corp. Magellan was formed at the end of 1995 when Charter acquired a 51% stake in Green Spring Health Services, a Columbia, Md.-based mental health benefits manager, for $73.2 million in cash and stock. The company continues to use the Charter moniker in its hospital names, however.
Under its new flag, Magellan began to recover from a 1995 net loss of $43 million, which primarily resulted from charges associated with the company's bankruptcy reorganization in 1992 and the creation of an employee stock option plan in 1988.
The turning point came for the company when it began shedding its final reorganization expenses and started seeing added income from the Green Spring acquisition. As a result, Magellan posted 1996 net income of $32.4 million.
In January 1996, original Columbia/HCA Healthcare Corp. investor Richard Rainwater and his wife, Darla Moore, purchased a 12% stake in the company. Magellan's deal with Rainwater and its efforts to reposition itself as a more integrated behavioral healthcare company then set the stage for a major reorganization announced earlier this year.
In February, Magellan said it will enter a $480 million sale-leaseback agreement with Crescent Real Estate Equities to manage its 96 hospitals. Crescent, a Fort Worth, Texas-based real estate investment trust, is controlled by early Columbia backers, including Rainwater.
Under the deal, Magellan's Charter Behavioral Health Systems will operate as a joint venture equally owned by Magellan and a Crescent affiliate. The deal gave Crescent a chance to ride momentum in the psychiatric industry generated by continued consolidation efforts, while Magellan saw a way to free up capital to fuel its managed-care and management services businesses.
Together again. The No. 5 provider on this year's list spent 1996 battling state Medicaid disproportionate-share funding laws and apparently devising plans to get back together with a former subsidiary.
Coral Gables, Fla.-based Ramsay Health Care planned to take $4 million in charges in fiscal 1996 to prepare for a possible settlement with the state of Louisiana, which contends some hospitals have been overpaid for their Medicaid services as a result of changes in Louisiana's funding rules.
Ramsay planned to take another $13.5 million in charges related to certain accounting rule changes, higher-than-expected cost report settlements, the write-off of certain accounts receivable and the buildup of reserves.
Also in 1996, Ramsay initiated plans to relocate to Coral Gables, where it had ties to a mental health management firm it had spun off in June 1995.
Ramsay recently announced its plans to buy back the firm, Ramsay Managed Care, for $18.6 million in stock and assumed debt in an effort to become a more integrated provider.