Behavioral Healthcare Corp. plans to exit five states and trim five to 10 hospitals from its portfolio in the next 12 months.
President and Chief Executive Officer Ed Stack said the plan to downsize is a response to shrinking mental health benefits and reimbursement pressures from the Balanced Budget Act of 1997.
With 30 hospitals in 16 states and Puerto Rico, BHC is the nation's second-largest behavioral healthcare company behind Atlanta-based Charter Behavioral Health Systems. Charter operates 86 facilities in 32 states. BHC is negotiating the sale of 80-bed BHC Millwood Hospital in Arlington, Texas, and its affiliated outpatient facility, the Excel Center, to not-for-profit Heritage Healthcare of America, an Encino, Calif.-based long-term-care company.
The deal would be Heritage's first venture into the freestanding psychiatric hospital business and may lead to others.
"We're in the market for psychiatric hospitals," said Heritage President Gerald Goldstein.
Terms of the sale were not disclosed, but the transaction should be completed "in the near future," Goldstein said.
After the planned divestitures, BHC would operate hospitals numbering "in the low twenties" in 11 states and Puerto Rico, Stack said.
"We're strategically (focusing on) states where we have a lot of hospitals," he said. Some hospitals slated for sale have been profitable but are not part of the company's geographical focus, he said.
Stack declined to say which states BHC plans to exit, which facilities it plans to sell or which companies are potential buyers.
The fiscal pressures Stack cited are being experienced by psychiatric hospitals nationally.
An industry report commissioned by the Washington-based National Association of Psychiatric Health Systems found that the value of mental health benefits had declined by 1.5% to $69.87 per covered individual in 1998, accounting for about 3.2% of overall healthcare benefits.
Reimbursement decreases mandated by the budget law slashed mean Medicare margins for psychiatric hospitals to -8.7% in 1998 from -3% in 1995, according to estimates from another study the NAPHS commissioned last year.
"It is a very difficult time in the industry," Stack said. "We (must downsize) to continue to provide quality of care to our patients."