Foundation Health Systems last week agreed to sell its only two hospitals, in the Los Angeles area, to a Houston-based company that specializes in buying urban hospitals and operating them through joint ventures with physicians.
Like a number of hospital systems getting out of the managed-care business, Foundation will, by the sale, end its experience running acute-care facilities.
Foundation, based in Woodland Hills, Calif., is the nation's fourth-largest publicly traded managed-care company, with more than 6 million enrollees in 21 states.
The two hospitals-127-bed East Los Angeles Doctors Hospital and 107-bed Memorial Hospital of Gardena-have been on the selling block since March, when Foundation announced a series of restructuring moves to right its financial ship.
The company lost $165 million on revenues of $8.9 billion last year. It posted a $187 million loss on $7.2 billion in revenues in 1997.
The buyer is Houston's HealthPlus Corp., a privately held company that owns two small hospitals, one in Houston and one in St. Louis. HealthPlus signed a letter of intent in early June to buy a third facility, in suburban Houston (June 7, p. 4).
Terms of the Foundation sale, which is expected to close in the third quarter, were not disclosed.
HealthPlus is known for pursuing a controversial physician syndication strategy pioneered by Columbia/HCA Healthcare Corp. Under the strategy, hospitals sell their assets to a syndicate in which physicians can invest. The goal is to increase physician loyalty to a particular institution, but the strategy can run afoul of the anti-kickback provisions of Medicare and Medicaid fraud-and-abuse statutes (June 21, p. 54).
Those provisions bar any form of remuneration to induce the referral of Medicare or Medicaid patients.
At deadline, HealthPlus executives had not responded to a request for an interview.
However, the company's World Wide Web site indicates that its strategy is to buy urban hospitals with fewer than 200 beds "at substantial discounts to historical valuations" and function as low-cost, high-volume providers.
John Styles, the company's chief executive officer, said in a written statement July 20 that acquiring the Los Angeles hospitals "presents a great opportunity to continue our business plan of working with physicians" in local partnerships.
Both hospitals lost money in 1997, the last year for which figures are available, according to HCIA, a Baltimore-based healthcare information company (See box).
The sale would end Foundation's seven-year stint in the hospital business, which began in 1992 when Foundation Health Corp., its predecessor company, acquired Century MediCorp, a Los Angeles-based health plan.
The hospitals were never part of Foundation's core business, and the company never expanded its hospital holdings.