Catholic Healthcare West jilted Nashville-based Vanguard Health Systems last week as a potential buyer for two of its Southern California hospitals, and is now in exclusive talks with Long Beach, Calif.-based Memorial Health Services.
CHW and Memorial officials said they expect to sign a definitive agreement for the sale of 205-bed Martin Luther Hospital Anaheim (Calif.) and 139-bed La Palma (Calif.) Intercommunity Hospital by early July.
San Francisco-based CHW's sudden about-face forces Vanguard into what is becoming a recurring role as bridesmaid (See story, this page).
Vanguard and CHW spokeswomen declined comment on why the talks with Vanguard broke down. The deals had been in the works since early May (May 24, p. 15).
Industry observers and sources close to the talks said not-for-profit Memorial made a better offer than for-profit Vanguard, although terms have been kept under tight wraps.
Memorial Chief Executive Officer Thomas Collins observed that not-for-profit CHW was also more comfortable dealing with another not-for-profit. "CHW has a deep legacy of providing not-for-profit, tax-exempt healthcare, and I think it was important to them that they keep their hospitals that way," he said.
Such a deal would also come under far less regulatory scrutiny than if CHW sold to a for-profit company, according to Steve Valentine, president of the Camden Group, an El Segundo, Calif.-based consulting firm.
State law requires at least one public hearing and the attorney general's approval if a not-for-profit is sold to a for-profit operator. Such sales and resulting conversions have been criticized by a number of consumer groups and labor organizations in the state.
Valentine added that the deal is far more strategically important to Memorial than Vanguard. Memorial owns three hospitals in Orange County, including 192-bed Anaheim Memorial Medical Center, located less than a mile from Martin Luther. Collins confirmed that Anaheim Memorial and Martin Luther would probably engage in some form of joint management.
Collins said Memorial and CHW have been in ongoing talks since the latter system sent out requests for proposals last February to unload Martin Luther and La Palma, only two months after acquiring them in December 1998 as part of an eight-hospital purchase from Burbank-based UniHealth.
CHW itself has been struggling.
Earlier this month, its senior vice president and chief medical officer, Kevin Fickenscher, M.D., announced his resignation after less than two-and-a-half years as head of the system's physician-hospital integration efforts.
Fickenscher, 48, will leave the 48-hospital system at the end of July. George Bo-Linn, M.D., currently CHW's vice president of physician integration, has been designated interim chief medical officer, said CHW spokeswoman Debbie Cantu.
In a statement, Fickenscher said changes in strategic direction at CHW, including a shift from centralized medical-group management to a regional approach, helped inspire his decision to resign. In the fiscal year ended June 30, 1998, the CHW Medical Foundation lost $39.6 million (April 5, p. 22).