Quorum Health Group is looking for a white knight.
The Brentwood, Tenn.-based hospital chain announced late last week it has hired New York investment bank Goldman, Sachs & Co. to act as its financial adviser in a quest for a possible merger, sale or recapitalization. Quorum is in the midst of a federal whistleblower investigation into its Medicare cost-reporting practices.
The company, which owns 21 hospitals and manages 215, publicly announced it had hired Goldman, Sachs only after its stock price began to soar following the revelation of the move in MODERN HEALTHCARE's Daily Fax on Aug. 10.
Quorum's stock hit a new 52-week high on Aug. 11, closing up 4.9% at $13.50 per share.
Also on Friday, credit-rating agency Standard & Poor's placed its ratings on Quorum on CreditWatch with negative implications. The move usually precedes a downgrade.
Quorum spokeswoman Shea Davis declined to comment on potential deal partners. However, an industry source familiar with the situation said that Santa Barbara, Calif.-based Tenet Healthcare Corp. and San Francisco-based private equity firm Texas Pacific Group have teamed up on a bid that might split up Quorum's hospitals between Tenet and a new private company.
Tenet already has a track record as a white knight. It was created when National Medical Enterprises purchased American Medical International in 1995. Tenet successfully put a fresh face on NME's image, which had been tarnished the year before. In 1994 NME paid $379 million to federal and state authorities to settle allegations of illegal kickbacks for patient referrals. Tenet also cleaned up a similar legal mess at some of the hospitals it inherited when it bought OrNda HealthCorp in 1997.
Texas Pacific is the investment firm that pumped $350 million into foundering Oxford Health Plans in 1998 in exchange for installing a new chief executive officer. Officials at Texas Pacific did not return telephone calls Friday; Goldman, Sachs declined to comment.
Tenet spokesman Harry Anderson wouldn't comment on the Quorum rumors but he noted that his company has demonstrated its skill at integrating groups of financially troubled hospitals in the past, most recently in its acquisition of eight Philadelphia-area hospitals from the bankrupt Allegheny Health, Education and Research Foundation.
"We think we've demonstrated a core competency in taking large systems and adding them to our company," he said.
Anderson said any acquisition would have to be strategic and benefit shareholders. Any hospitals in markets Tenet is not already in would have to give the company enough market share to become a significant player, he said.
Industry analysts have mentioned other hospital companies as potential interested parties.
Dallas-based Triad Hospitals, spun off from HCA-The Healthcare Co. a year ago, has hospitals in mid-sized markets similar in size to Quorum's; the company, however, would have to overcome tax hurdles related to its spinoff to make a major acquisition before next May, according to analysts.
Triad spokeswoman Patricia Ball said all of Triad's acquisitions have been coordinated with the IRS. Company officials would not comment on any pending deals. She said, however, that Triad was "in the hunt."
Quorum also announced it expects to report this week a slide in annual earnings to 79 cents per share for fiscal 2000 before investigation-related charges, down from 86 cents per share in 1999. The company is scheduled to report its fourth-quarter and year-end financial results this week.
It's unclear how Quorum's news will affect its mediation talks with the U.S. Justice Department over a whistleblower lawsuit that alleges Medicare fraud at some of its hospitals.