DAVENPORT, Iowa-The last for-profit hospital in Iowa is being sold.
New American Health Corp., a struggling Brentwood, Tenn.-based hospital chain, has agreed to sell its 65-bed Davenport (Iowa) Medical Center to not-for-profit Trinity Regional Health System, based across the Mississippi River in Rock Island, Ill.
Terms of the sale, which is expected to close Aug. 1, were not disclosed.
Davenport Medical is one of three hospitals that New American intends to sell by March 2000. The company has declined to specify which others are for sale, but selling three would leave the 3-year-old company with eight hospitals.
Dana McLendon Jr., senior vice president and chief administrative officer at New American, said Davenport Medical did not fit into the company's core strategy, partly because of its location and competition in the market.
"Our business strategy is to be the leading provider of quality healthcare services in the rural communities that we target," he said. That raises the question of whether Davenport and the Quad Cities are rural.
"Most would say not," he said.
And most would say New American didn't fit in Iowa, where for-profit hospitals have been as scarce as looming skyscrapers. Out of the state's 117 hospitals, Davenport Medical is the only for-profit.
Meanwhile, the acquisition would consolidate Trinity's position in the Quad Cities marketplace, giving it two acute-care hospitals compared with the three affiliated with Davenport-based competitor Genesis Health System.
Trinity owns 335-bed Trinity Medical Center in Rock Island and a 20-bed short-stay facility in Moline, Ill.
Genesis controls the majority of the area's beds, including 427-bed Genesis Medical Center in Davenport, 133-bed Illini Hospital across the river in Silvis, Ill., and 101-bed De Witt (Iowa) Community Hospital, located just north of the Quad Cities.
Trinity President and Chief Executive Officer Eric Crowell said the purchase gives his hospital strategic access to Genesis' core service area.
"We felt it was important, given that New American had an interest in selling, that we step up to the plate," Crowell said. "It's a continuation of our building a presence in Iowa."
Trinity operates a women's health center and home-care service in Davenport, and a women's health center in Bettendorf, Iowa.
If the deal is completed, it would be the fourth time in five years that Davenport Medical changed hands but the first time the transaction was not part of a larger purchase.
In 1994, OrNda HealthCorp acquired the hospital when it bought Summit Health of Burbank, Calif. Tenet Healthcare Corp. took over operations when it acquired OrNda in 1997. In January 1998, New American bought Davenport Medical as part of a four-hospital acquisition from Tenet for $57 million. The other hospitals in the package were Lander (Wyo.) Valley Medical Center, Woodland Park Hospital in Portland, Ore., and Eastmoreland Hospital, also in Portland.
McLendon said it is not uncommon for hospital companies to buy a package of hospitals and sell one or more later because they do not fit the company's profile.
In its annual report filed with the Securities and Exchange Commission, New American noted that the company may incur losses on the sales of the three hospitals.
Despite its smaller size, Davenport Medical's new owner is in better financial shape than its former one.
In 1998, Trinity posted net income of $12.4 million on $153 million in revenues, according to Chief Financial Officer John Dennison.
For the year ended March 31, New American reported a net loss of $182,000, or 1 cent per share, compared with net income of $175,000, or 1 cent per share, last year. Revenues for the year were $171.8 million, up 127% from $75.6 million in 1998. Those revenues were boosted by the acquisitions of other hospitals.
Trinity will use cash reserves to pay the undisclosed price.
Though the deal is too small to generate federal antitrust scrutiny, Crowell said, "It's really about increasing competition in the Quad Cities."
The Federal Trade Commission spent four months investigating the last major Quad Cities hospital consolidation. That deal was the 1992 merger between Franciscan Medical Center in Rock Island and United Hospital in Moline, which created Trinity Regional.
Competition has grown in recent months. In February, Trinity challenged the local Genesis monopoly on open-heart surgery by starting its own open-heart program. Genesis fired back in April with the announcement of a plan to create a Quad Cities Heart Institute, a collaboration between the health system's flagship hospital and two cardiologist associations.
Crowell, who will continue as the system's CEO, said Trinity has not pinned a dollar amount on the net financial impact on Iowans once the hospital goes not-for-profit. But under the Trinity banner the hospital will increase charity care and other contributions to the community, he said.
Bob Lundin, Trinity's vice president of marketing and public relations, will become interim president and CEO at the newly acquired hospital, which will be renamed Trinity Medical Center North.