HealthSouth Corp., the nation's largest rehabilitation company, let it be widely known last week it's interested in acquiring certain business lines that Columbia/HCA Healthcare Corp. may be discarding as it attempts to rebound from its growing legal problems.
The company also said it made an unsuccessful bid to acquire all of Columbia last month. Last week it revised its offer to specifically cover Columbia's rehabilitation facilities, surgery centers, occupational clinics and diagnostic units.
Columbia, which is in the midst of a major restructuring, was operating 136 outpatient surgery centers at the end of last year. As a result of Columbia's growth in home-care, outpatient surgery and other ancillary services, the company's outpatient revenues increased to 39% of its total patient revenues in the fourth quarter of 1996 from 37% in same quarter of 1995.
Richard M. Scrushy, HealthSouth's chairman and chief executive officer, on July 23 faxed a letter to Thomas Frist Jr., M.D., Columbia's new chairman and chief executive officer, offering to buy the company outright for up to $45 a share, or $30 billion, but got no response. He then faxed another letter to Frist on Aug. 14 taking the original offer off the table and proposing instead to buy pieces of Columbia.
A price of $45 a share would have been a large premium over Columbia's recent trading range. The chain's stock closed last week at $32.38 per share, after climbing more than $1 per share following disclosure of HealthSouth's interest. Columbia's stock price had been dropping during the week as details of the company's legal troubles emerged (See story, p. 3).
Jeff Prescott, a Columbia spokesman, said Columbia has not agreed to any deals with HealthSouth and has announced plans to sell only its home-care business.
Separately, Birmingham, Ala.-based HealthSouth is in the process of acquiring eight imaging centers from a privately held company that also manages diagnostic services for insurers, Federal Trade Commission documents show. The FTC said last week that it's cleared HealthSouth's previously unannounced deal with Nashville-based MedSolutions, formerly called National Imaging Affiliates.
Last year, MedSolutions took its new name and refocused its operations. The Nashville Business Journal said MedSolutions had $26.2 million in revenues last year.
The company was formed as National Imaging Affiliates in 1992 by Frank Kyle, the former president of MedAlliance, a Nashville-based imaging company. In 1995 MedAlliance was acquired by Atlanta-based Health Images, which HealthSouth coincidentally bought last year.
The goal of National Imaging was to buy out doctors who wanted to sell their stakes in imaging centers before a new federal physician self-referral law took effect in January 1995.
Passed by Congress in 1993, the legislation, commonly known as "Stark II" after its author, Rep. Fortney "Pete" Stark (D-Calif.), bars physicians from owning a variety of health facilities or services to which they refer Medicare or Medicaid patients.
Companies like HealthSouth and National Imaging Affiliates stood to benefit from the changes, which gave them acquisition opportunities and eliminated some competitors.
But in December 1996, after acquiring eight imaging centers, Kyle, according to published reports, decided that too many companies were competing for too few patients at a time when insurers wanted to cut down on the use of diagnostic services. Quoted in one article, he said he wanted to be "the diagnostic gatekeeper."
MedSolutions now acts as the middleman between insurers and imaging centers. The company helps determine whether certain diagnostic tests are necessary and handles the processing of insurance claims with the intent of reducing insurers' costs for diagnostic services.
MedSolutions had contracts to manage the diagnostic services of more than 200,000 insurance-plan enrollees at the end of last year.
However, a HealthSouth spokesman said late last week that the company is buying only MedSolutions' imaging centers, not its benefits management line of work.
The acquisition of MedSolutions' eight imaging centers is expected to close within the next month. Terms haven't been disclosed.