With its first two acquisitions, both completed in the past two weeks, Iasis Healthcare Corp. jumped up the ranks to become the nation's seventh-largest for-profit hospital company.
Company officials are keeping mum about their strategic plans for their 15 hospitals, but Nashville-based Iasis will face challenges in its new markets because of competition and high managed-care penetration, according to a recent report by Moody's Investors Service.
The New York-based firm assigned a B1 rating to Iasis' $455 million of senior secured credit facilities and a B3 rating to $230 million of senior subordinated notes due in 2009. The proceeds are being used to acquire the 10 hospitals Iasis bought from Tenet Healthcare Corp. and to refinance debt.
Iasis last week announced it had completed its deal with Tenet. Three of its new hospitals are in the Phoenix market; three are in Florida's Tampa Bay area; and four are in Texas. The week before, Iasis completed its acquisition of five Salt Lake City-area hospitals from Houston-based Paracelsus Healthcare Corp. (Oct. 18, p. 27).
Iasis' strategy is to tailor its policies locally in each of its new markets, expanding services, improving operations, recruiting physicians and renegotiating managed-care contracts, according to Moody's. Its markets are primarily growing urban areas.
Although the hospitals Iasis has bought have generally performed well in recent years, the Phoenix hospitals have suffered somewhat from management turnover and collections difficulties, according to Moody's.
"While revenues are distributed fairly evenly across the four markets, the lagging performance of Phoenix leads to an uneven distribution of cash flow," the report stated.
The hospitals Iasis purchased are likely to perform well if the company succeeds in implementing a more local focus in the markets, but achieving this goal may be difficult.
"Our expectation is that it's going to be a pretty challenging environment because they're in markets that have very large competitors and very high managed-care penetration," said Diana Lee, Moody's senior vice president and senior credit officer.
Iasis officials declined repeated requests for an interview. A company spokeswoman cited securities law related to Iasis' financing arrangement, but Securities and Exchange Commission spokesman John Heine said that the provision applies to only publicly traded companies.
Privately held Iasis was founded last year by several Nashville healthcare executives. Wayne Gower, a former Columbia/HCA Healthcare Corp. division president, is president and chief executive officer of Iasis.