A consortium of not-for-profit healthcare systems in the Southeast is cobbling together a deal to buy a portion of Columbia/HCA Healthcare Corp.'s Atlantic division, sources familiar with the deal told MODERN HEALTHCARE.
The group is said to include Alliant Health System in Louisville, Ky., Novant Health in Winston-Salem, N.C., and an unidentified Baptist system in Alabama. They would pay more than $1 billion for a chunk of the 45-member Atlantic division.
The deal would return to not-for-profit ownership a number of hospitals acquired by Columbia during a buying binge that ended last year when the Nashville-based hospital chain became the target of a federal billing investigation.
The strategy makes sense from a market perspective. Nearly half the hospitals in Columbia's Atlantic division are in Alabama, Kentucky and North Carolina (See box).
At deadline, calls to Alliant and Columbia were not returned. Novant spokesman Mike Massoglia returned a call to Novant President and Chief Executive Officer Paul Wiles. "That's a very interesting idea," Massoglia said, "but we have no comment."
Novant is a member of the Irving, Texas-based VHA hospital alliance, which has been a proponent of strategies to preserve not-for-profit hospital ownership. But the alliance denied any direct connection to the consortium's initiative.
"VHA is not involved financially or otherwise in the effort by these hospitals to purchase the Columbia hospitals," said Lynn Gentry, a VHA spokesman. "We knew it was happening," said Gentry, but he declined further comment, since the deal has not been announced publicly.
The consortium is said to be represented by New York-based Smith Barney. Fred Hessler, head of the investment bank's healthcare group, did not return a phone call.
Last week, Columbia announced a change in its divestiture strategy. Instead of spinning off the Atlantic division into a separate publicly traded company, it will retain some of the facilities and sell the others.
Columbia still plans to spin off its America and Pacific groups, with 21 and 42 hospitals, respectively. The company said it would be faster and easier to get Internal Revenue Service approval for two, rather than three, spinoffs.
Sources speculated that Columbia would make more money selling the Atlantic division hospitals for cash than it would in a tax-free spinoff.
Also last week, Columbia reported that it turned a profit in the first quarter, beating some analysts' estimates.
Net income for the first quarter ended March 31 dropped 43% to $197 million, or 31 cents per share, from $423 million, or 62 cents per share, in the year-ago quarter. Revenues fell slightly to $4.9 billion.
"This (quarter) is better than we expected," said James Baker III of Equitable Securities Corp. in Nashville. "Columbia is moving in the right direction, but they're not out of the woods yet."
Columbia Senior Vice President Victor Campbell said inpatient admissions rose 2% during the quarter to 507,600 from 497,200 in the year-ago period. The company's outpatient revenues also edged up, to 35.8% of total revenues from 35.1%.
"We're seeing continued loyalty to our local hospitals by our physicians," Campbell said. "We're also monitoring physician satisfaction, and we did see some dips in that in 1997. That has improved significantly in the first quarter."
Columbia lost $1.3 billion, or $2.01 per share, in the fourth quarter of 1997, largely attributed to restructuring costs related to the planned sales of its Value Health divisions.
The company also has been shelling out for legal and accounting services related to an internal investigation into its billing practices. Columbia is the target of a continuing federal probe into possible billing fraud.
-- With Kristen Hallam