Just as a drop of blood can signal sharks miles away, the chance that a profitable hospital may go on the block has at least one for-profit predator circling.
The prey is 340-bed Memorial Hospital, Colorado Springs, Colo., and the predator is Nashville-based MissionHealth, a limited-liability company that forms partnerships with not-for-profit hospitals that need cash.
By the end of the month, Colorado Springs Mayor Mary Lou Makepeace is expected to name a blue-ribbon commission to study the hospital's future. The facility has been owned by the city for about 55 years and is one of two hospitals in Colorado Springs.
It's also quite profitable. Last year, the facility reported net income of $27.6 million on revenues of $194 million-and the city has not needed to lend financial support for eight years.
The commission is expected to study issues such as whether the hospital should keep its ownership status.
The ownership question would ultimately go before Colorado Springs voters.
Last month, MissionHealth, owned by healthcare consultant Joshua Nemzoff, sent the mayor an introductory letter that laid out the company's objectives. Nemzoff said the company issues about three such letters each week to prospective hospital clients. MissionHealth has several pending deals that may close by year-end, Nemzoff said, but the company has no hospitals in its stable.
"We have not talked to the mayor and are not in negotiations," Nemzoff said.
The hospital is planning a $160 million expansion including a new women and children's pavilion. Randy Purvis, who serves on the City Council and the hospital board, said the hospital would need to issue only about $40 million in bonds for the project because of its financial strength. The hospital holds an A-2 bond rating from Standard & Poor's.
Purvis and other local observers said they are unaware of other offers by for-profit healthcare companies.
In a previous interview, Nemzoff said MissionHealth targets hospitals that are unable to issue debt at competitive rates. Typically it looks at not-for-profits with Baa bond ratings. MissionHealth would provide $30 million to $250 million in financing, and in exchange would get a percentage of the hospital's cash flow (Sept. 7, p. 40). Local management would continue.
Nemzoff said Memorial Hospital fits MissionHealth's profile "perfectly," particularly if local officials want to maintain management control over the hospital.
But Purvis said the city can get competitive rates without help. "The amount we need is relatively small in comparison to what's being offered," he said.