After losing nearly $24 million in one recent quarter alone, Catholic Healthcare West hinted that it had sated its appetite for hospital acquisitions.
But as people watching their weight will tell you, there's always room for more when the right dish comes along.
In this case, the dish is 93-bed South Valley Hospital in Gilroy, Calif., a for-profit hospital owned by Columbia/HCA Healthcare Corp.
CHW already owns two hospitals in the same market: 257-bed O'Connor Hospital in San Jose, about 45 miles north of Gilroy, and 55-bed Saint Louise Hospital in Morgan Hill, between San Jose and Gilroy.
CHW is talking with Columbia about buying South Valley, said Bob Polzoni, a spokesman for the San Francisco-based Roman Catholic system. He declined to elaborate.
CHW operates 48 hospitals in Arizona, California and Nevada. It has grown rapidly in recent years, adding nine hospitals since last June.
Investment income helped the system post a $73 million overall profit last fiscal year, when the system's money-losing medical group practices dragged it into a $32 million operating loss. Investment income didn't help enough in the quarter ended Sept. 30, 1998, when the system posted a net loss of $23.8 million (April 5, p. 22). CHW executives subsequently said growth would taper off, and the system would enter a settling-in period.
But the opportunity to string its market share south to Gilroy appears to be too enticing to pass up-so much so that CHW appears ready to overlook South Valley's $6.8 million operating loss in the fiscal year ended June 30, 1998, according to statistics compiled by California's Office of Statewide Health Planning and Development. The hospital reported operating revenues of $21.1 million.
Some find it puzzling that CHW might acquire money-losing South Valley. It makes no sense to add capacity in the overcrowded San Jose market, said Dick Warren, chief executive officer and administrator of 420-bed stand-alone El Camino Hospital in nearby Mountain View.
"The only thing that would make sense to me is for somebody to go in and buy it and close it down," he said.
Perhaps South Valley looks more appetizing because Columbia recently bolstered its market share in San Jose.
Earlier this year, Columbia acquired 192-bed Alexian Brothers Hospital in San Jose from Alexian Brothers Health System, based in Elk Grove Village, Ill. (Jan. 4, p. 15). The acquisition gave Columbia control of three of San Jose's six hospitals and 53% of the city's 1,719 beds. It already owned 388-bed Good Samaritan Hospital and 327-bed San Jose Medical Center.
CHW benefited financially from that deal because of an unusual antitrust settlement between Alexian, Columbia and the state of California. To compensate CHW for any increase in uncompensated care because of Alexian Brothers' conversion to a for-profit, Alexian agreed to donate $4 million to CHW's O'Connor Hospital in San Jose.
CHW didn't use antitrust grounds to oppose the Alexian-Columbia deal with the state. CHW officials insist their silence wasn't conditioned on an opportunity to buy South Valley from Columbia. Polzoni said the South Bay discussions started after the Alexian deal was completed.
South Valley spokeswoman Frankie Munoz confirmed that hospital officials have discussed a sale to or a joint venture or a partnership with several organizations, including CHW. But, she stressed, talks are preliminary.