UniHealth, once considered the prototype of an integrated delivery system, is negotiating a sale or joint venture involving its last remaining hospitals to Catholic Healthcare West, MODERN HEALTHCARE has learned.
A divestiture of eight Los Angeles-area facilities would all but gut the Burbank, Calif.-based system, which once sported 11 hospitals, a 2 million-enrollee HMO and a 7,100-physician medical group. Only cash, some consulting operations and a small home health subsidiary would be left if a sale is executed.
Officials for UniHealth and CHW confirmed last week that discussions are under way, but they declined further comment.
Terms of the possible sale weren't disclosed, but the hospitals carry a heavy debt load (See chart).
"We're at the very beginning of discussions, and there is nothing on paper," said Debbie Cantu, a spokeswoman for San Francisco-based CHW.
That UniHealth would speak at all of discussions is a major departure from its corporate policy of neither confirming nor denying pending transactions. Several observers have taken that as a signal that a deal would be announced soon.
Indeed, industry sources close to the company confirmed that UniHealth distributed memos last week to its hospital and medical group employees discussing in depth a possible transaction.
To date, UniHealth has divested its majority interest in the huge for-profit HMO PacifiCare Health Systems; sold or shut down about a third of its hospitals; and sold its CareAmerica Health Plans HMO to Blue Shield of California for $165 million, a deal completed in October.
It also has been seeking a majority buyer or partner for its UniMed Management Co., which operates 10 medical groups with 7,100 affiliated physicians (Nov. 3, p. 34).
Sources say UniHealth backed off a wide-ranging buyer solicitation late last month as talks with CHW began heating up.
"It's possible that CHW may also be interested in the medical groups," said Steve Valentine, president of the Camden Group, an El Segundo, Calif.-based consulting firm. "The UniHealth doctors would become a keystone to any hospital deal, and I'd be surprised if UniHealth would sell their hospitals to one party and their medical groups to another."
As for other aspects of a hospital deal, observers say it dovetails with a potential UniHealth strategy of shedding virtually all its operations and converting to a large community foundation (Nov. 3, p. 34). And it would provide CHW, which is an expanding healthcare powerhouse in California, a boost in the competitive Los Angeles market.
CHW owns or manages 33 hospitals statewide but has only four facilities in the Los Angeles area. It has two hospitals out of state. It's under pressure, observers say, to beef up its presence in Los Angeles given the growth there of rival Tenet Healthcare Corp., based in Santa Barbara, Calif. Tenet owns 27 hospitals in the region.
Tenet and CHW still are investigating a joint venture for their facilities in the San Joaquin Valley.
"We are interested in expanding our presence in Southern California," Cantu said.
CHW's sterling credit rating could also help the UniHealth hospitals receive more favorable financing for their long-term debt. While Valentine noted each UniHealth hospital has a moderate debt load, in the aggregate it totals $330.4 million, according to the most recent available data from American Hospital Directory, a Louisville, Ky.-based healthcare information company.
The eight hospitals, with a total of 2,050 beds, had combined net patient revenues of $609.5 million and lost $6.4 million in their most recent reporting years, according to AHD.
That both parties are not-for-profits and have Christian religious roots -- UniHealth was originally part of the Lutheran Health Society of Southern California -- makes them quite compatible, observers say.