In the world of hospital acquisitions, getting the hospital would seem to be the goal.
But that's not always true. Sometimes an acquisition is just a means to another end.
That has been the case with La Palma (Calif.) Intercommunity Hospital, near Los Angeles, which has had three owners in the past year and is in the midst of a deal to be sold to a fourth.
Its current and previous owners acknowledge that ownership of La Palma was not the ultimate motive for any of the deals to date, and the hospital was quickly peddled after each sale. Officials from the company now trying to buy La Palma, however, say the hospital is worth having.
Whether that is true seems to depend on who is doing the talking.
Just part of the deal for CHW
San Francisco-based Catholic Healthcare West bought La Palma in December 1998 as part of an eight-hospital deal worth $265 million with Burbank-based UniHealth. At the time UniHealth was divesting its entire hospital portfolio.
As CHW spokeswoman Joyce Hawthorne tells it, CHW really wanted UniHealth's hospitals in Los Angeles and took the two in Orange County-La Palma and 205-bed Martin Luther Hospital in Anaheim-simply because they were part of the deal.
"It wasn't pick and choose," Hawthorne says.
CHW now has 46 hospitals, 12 of which are in Southern California. But the system's focus is in Los Angeles County and further inland, not in Orange County.
"We had a very low profile there," she says. "It made more sense for those hospitals to affiliate with a system that had a real presence in Orange County."
So CHW set about finding a buyer. After talking with for-profit Nashville-based Vanguard Health Systems early this year, CHW opted instead for not-for-profit Memorial Health Services, based in Long Beach, Calif. (June 28, p. 21).
Memorial gains a competitor
For Memorial, La Palma was again a side issue to a larger transaction. CHW was selling two hospitals, and the one Memorial really wanted was Martin Luther, located a mere six-tenths of a mile from its own 192-bed Anaheim Memorial Medical Center.
The two facilities had been competing for various programs for the past 25 years, and Memorial foresaw consolidation potential. But La Palma, six miles away, did not have the same allure.
"The reason that we bought two is that was the condition that Catholic Healthcare West placed upon the sale initially," says Thomas Collins, chief executive officer of Memorial Health Services.
"We agreed with Catholic Healthcare West that we would buy it, that we would take it over as an inpatient facility, put our staff in immediately, and then we would go through an evaluation process to determine its best use going forward," he adds.
But at no point did Memorial promise to keep La Palma, Collins says.
The system, in fact, had hired accounting and consulting firm Ernst & Young in July, a month before Memorial's purchase of La Palma was even completed, to help determine La Palma's fate.
The recommendation was to sell it, Collins says.
So Memorial, which has seven hospitals, signed a letter of intent to sell La Palma to Vanguard, one month after buying it. No likely purchase price has been disclosed.
Meanwhile, the system merged Martin Luther with its own hospital in Anaheim, turning the former competitor acute-care hospital into a center for outpatient and diagnostic services and ambulatory surgery.
"Instead of having two competitive programs, we'll have one complementary one," Collins says.
Round two for Vanguard
So Vanguard, jilted earlier in the year by CHW in its quest for La Palma and Martin Luther, got a second chance to buy at least one of the two. And Robert Galloway, senior vice president of development at Vanguard, does not seem queasy about the hospital's recent ownership turmoil.
"I don't think it has anything to do with (problems at) the particular hospital," he says. "I think it has to do with the owners' initiatives and the owners' alignment."
Vanguard, which recently bought 219-bed West Anaheim Medical Center in Anaheim and 114-bed Huntington Beach (Calif.) Hospital from Dallas-based Triad Hospitals, has been getting more aggressive in its acquisition strategy in the past few months, recently announcing a pending deal to buy 333-bed MacNeal Hospital in the Chicago suburb of Berwyn, Ill. (Oct. 11, p. 24).
Vanguard's only other hospital is 213-bed Maryvale Hospital Medical Center in Phoenix.
The company's strategy is to buy not-for-profit facilities and convert them to investor-owned status while maintaining a community focus.
"In this situation, I think the specifics of the market may tend more toward the Vanguard model for unique individual community hospitals," Galloway says.
From the company's perspective, La Palma is also a mere three miles from West Anaheim, the hospital Vanguard just bought from Triad, a Columbia/HCA Healthcare Corp. spinoff.
Galloway says that it is too early to say for sure, but the two hospitals could collaborate to develop specialized services. Eventually, the company hopes to grow concentrically around its three markets: Chicago, Orange County and Phoenix.
La Palma hopes for the best
Gina Esparza, spokeswoman for La Palma, says the hospital's 500 employees are happy a buyer has come forward.
Before the announcement that a letter of intent with Vanguard had been signed, the local media had reported that Memorial might close or convert to a psychiatric facility.
For the first half of this year, La Palma lost $2.3 million on total net patient revenues of $19.1 million, according to the state's Office of Statewide Health Planning and Development. For fiscal 1998, the hospital lost $4.5 million on net patient revenues of $36.1 million.
The game of ownership musical chairs has led to the creation of a new employee newsletter and an employee transition team to answer questions, Esparza says.
"In Southern California, there's been a lot of change in healthcare and hospital ownership over the past few years, so we're focusing on our patients and our communities," she says. "That's really where we're at."
Vanguard officials have already met with hospital employees and showed an interest in expanding the hospital, which sounds promising, she says. Meanwhile, employees continue to do their jobs.
"The interested parties that we've had have been very communicative, very vocal," she says, "and that has helped a lot."