A private start-up hospital company is trying to launch itself by buying four hospitals from Houston-based Paracelsus Healthcare Corp.
In a twist that illustrates the cyclic nature of the for-profit hospital sector, the president and chief executive officer of the fledgling company, A. Ronald Turner, sold these same hospitals to Paracelsus more than a decade ago.
In the interim, he dropped out of the hospital business and did "a lot of things," he said, including owning an interest in a luxury car dealership and a hotel, and helping launch a telecommunications company that no longer exists.
With the latest venture, "we want to take hospitals back to the basics, meaning back to operating (a facility) as a primary-care hospital providing general acute-care services," he said.
Turner's company, Associated Healthcare Systems, will be based in Alpharetta, Ga. Its strategy is to acquire rural hospitals and to pursue management contracts with facilities that might take advantage of a federal program for so-called critical access hospitals. Some rural tax-exempt hospitals that downsize services, eliminate long-term care and sign agreements with a larger hospital can qualify for higher Medicare reimbursements under critical access legislation included in the Balanced Budget Act of 1997.
Turner compared his company with Brentwood, Tenn.-based Province Healthcare, which owns 11 acute-care hospitals in seven states and manages 52 more.
Associated Healthcare said it has signed definitive agreements to purchase 77-bed Cumberland River Hospital in Celina, Tenn.; 73-bed Fentress County General Hospital in Jamestown, Tenn.; 52-bed Senatobia (Miss.) Community Hospital; and 50-bed Flint River Community Hospital in Montezuma, Ga.
Deborah Frankovich, Paracelsus senior vice president and treasurer, confirmed that the hospitals were for sale but declined to confirm the buyer. The sale is expected to close by the end of June, according to a Paracelsus filing with the Securities and Exchange Commission. Terms were not disclosed.
Turner declined to provide specific financials for each hospital but said that the four together reported $50 million in revenues last year.
His renewed interest in these hospitals stems in part from Cumberland River and Fentress' inclusion on the list of the top 100 hospital performers published in 1998 by HCIA and the William M. Mercer human resources management consulting firm (Dec. 7, 1998, p. 38).
Turner said his company has accumulated capital partners and long-term permanent lenders, as well as a $7.5 million revolving line of credit. Confidentiality agreements keep him from disclosing details of the pending sale, he said, including the prices. But his company has put up some money to secure the purchase, he said. The deal involves a combination of cash and seller financing in the form of secured subordinated notes.
Turner's healthcare career has involved several corporate reinventions.
He helped found the private Southern Health Services, based in Atlanta, in 1978. Health Group, of Nashville, bought that company in 1982, and Turner became president and chief operating officer. Under the Health Group name, the company then owned 20 hospitals in 10 states, as well as five nursing homes.
That company grew to include 24 hospitals and 37 nursing homes before it sold its nursing home division in 1985 to Owens-Illinois, of Toledo, Ohio, which had invested heavily in the company.
In 1986, Health Group was liquidated. The company's officers opted to divest and sell all of the assets instead of taking the company public, Turner said. Before that, however, in 1985 Health Group sold seven hospitals-including the four Turner is trying to buy-to Paracelsus.
Meanwhile, the sale is part of Paracelsus' efforts to right its financial ship.
Earlier this month, it reported a net loss of $1.6 million, or 3 cents per share, for the first quarter ended March 31, compared with a net income of $450,000, or 1 cent per share, during the same quarter last year. The company's revenues for the quarter were $150.9 million, a 19% drop from the $186.9 million reported during the same period of 1998.