Almost four years after being funded as a privately held rural hospital company, NetCare Health Systems, Nashville, could be close to disbanding by selling its remaining 10 hospitals, MODERN HEALTHCARE has learned.
NetCare's investors would like to close a deal in March, and a source close to the negotiations said a potential buyer could be either Brentwood, Tenn.-based Province Healthcare Corp. or King of Prussia, Pa.-based Universal Health Services.
The deal may involve one company's acquisition of all NetCare hospitals; that company would sell those facilities that do not fit its portfolio, the source said.
Michael Koban Jr., chief executive officer, president and a director of NetCare, did not respond to repeated requests for an interview.
"NetCare declines to comment on such speculation," said NetCare spokesman Nicholas Owens. "The only focus at this time is on growing existing markets and focusing on value for the company."
Several former executives of Healthtrust, including Koban, founded NetCare. Charterhouse Equity Partners, an investment firm in New York, initially funded it.
Province and UHS officials declined to comment on the specifics of any pending purchases. But neither ruled out a multiple-hospital deal.
Merilyn Herbert, vice president of investor relations at Province, said the company is in a strategic position to look at a multiple-hospital deal if the hospitals are a good fit. She said the company is considering at least 14 hospitals.
Under Province's strategic guidelines, the system pursues hospitals that are in nonurban growing markets with at least 20,000 people, have revenues of at least $12 million and are or could be the dominant provider.
In a 1998 Securities and Exchange Commission filing, NetCare described its hospitals as generally the only ones in their communities. The communities typically have populations of 15,000 to 110,000 and annual population growth rates of more than twice the national average.
NetCare has three hospitals in Georgia and one facility in each of seven states: Alabama, California, Mississippi, Missouri, North Carolina, Texas and West Virginia.
Province's holdings include hospitals in California and Texas.
Last week Province bumped up to four the number of Texas hospitals it owns when it acquired 45-bed City of Ennis (Texas) Hospital through a $3 million, 30-year lease agreement. The hospital's previous owner, Baylor Health Care System, Dallas, eliminated inpatient services at the facility in January to stem financial losses. Province plans to restore full services by April 1.
Peter Costa, a healthcare analyst in the Boston office of ABN Amro, said a NetCare sale could make sense.
"Any time a company is thwarted from going public, it's looking for alternative strategies, an exit strategy for investors," he said.
Richard Wright, vice president of development for UHS, said the system has 10 to 15 hospitals in its acquisition pipeline. He declined to say whether any were NetCare hospitals but said the company might have deals to announce in March or April.
"If we consider acquiring properties, they'll have to meet our market criteria and/or we'll have to convince ourselves that there are upsides in that market," he said.
Generally, UHS' markets are larger and more urban than NetCare's. UHS looks at communities with fast-growing populations of 200,000 or more and hospitals with 200 or more beds. The company has not announced any acquisitions for a year and a half.
During the company's year-end earnings conference call last week UHS Chief Financial Officer Kirk Gorman said the company is looking at some communities that are smaller than its usual acquisition targets (See story, p. 20).
"There's a lot of stuff we're looking at," he said. "There are a couple of deals in there that are pretty small, at the smaller end of the types of communities that our company serves."
UHS' holdings include facilities in California, Georgia, Missouri and Texas.
In a later interview with MODERN HEALTHCARE, Gorman said he "wouldn't rule out" a multiple-hospital purchase.