Add two more companies to the list of for-profit hospital chains with ties to Nashville.
Last week, Columbia/HCA Healthcare Corp. filed notice with the Securities and Exchange Commission detailing its plans to spin off two new companies, which would control 64 hospitals.
One company, to be called Triad, will have 42 hospitals and will be based in Dallas. It was formerly the Pacific Group, a division formed by Columbia last year. Triad also will include 19 outpatient surgery centers.
The second company, to be called LifePoint, will have 22 hospitals and will be based in Nashville. It was previously Columbia's America Group of hospitals.
Columbia created the Pacific and America groups of hospitals in November 1997. Twenty-one of the 45 hospitals in a third group, called the Atlantic Group, were sold to a consortium of not-for-profit hospital systems earlier this year (May 25, p. 2).
LifePoint will be made up of mostly rural hospitals. The company will be headed by Scott Mercy, 37, a former Columbia top executive who most recently left his chief executive officer position at Brentwood, Tenn.-based America Service Group.
Triad facilities will be located in cities with fewer than 150,000 residents. Its chief will be James Shelton, 45, who had been president of Columbia's Central Group since 1994.
Both companies will be publicly traded.
Nashville-based Columbia, which will be left with 232 hospitals, expects to spin off the two companies by the end of the second quarter.
In its filing, Columbia said Triad intends to sell nine of its acute-care hospitals, one psychiatric hospital and some of its outpatient surgery centers.
Approval by the Internal Revenue Service is pending for the proposed tax-free spinoffs. Columbia expects IRS approval by the end of the first quarter.
Columbia noted several risks related to the spinoffs, namely the ongoing federal investigation into Columbia's billing practices and pending whistleblower lawsuits.
While Columbia is indemnifying the spinoffs from any settlement payments that might be generated by the federal investigation, that protection won't be extended to the companies for new lawsuits filed by outside parties, spokesman Jeff Prescott said.
To improve dismal occupancy rates, which average in the 35% to 39% range at the spinoff hospitals, the companies will go on a physician recruitment binge. Prescott said LifePoint will start recruiting 200 physicians. Triad's need for new physicians isn't as great as LifePoint's, but the company will work with physicians in communities where Triad hospitals are located to expand services, Shelton said.
Low occupancy rates don't necessarily mean the companies are bad investments, observers say.
"HealthTrust and Epic (Healthcare Group) were both pretty depressing companies when they got started," said David Whelan, healthcare consultant at Atlanta-based Hamilton HMC.
HealthTrust was spun off from Columbia's predecessor, Hospital Corporation of America in 1987 and then repurchased by Columbia in 1995. Epic was spun off from American Medical International in 1988 and was acquired by HealthTrust in 1994.