Triad Hospitals' pending $2.4 billion acquisition of Quorum Health Group may not pose antitrust problems on a national scale, but one of the sale's secondary transactions may create another one-hospital town.
Triad has said all along that it intends to sell as many as seven of the 21 hospitals owned by Quorum as part of its acquisition of the Brentwood, Tenn.-based hospital chain. Last week, in one of several recent developments signaling that Triad and Quorum are nearing the close of their transaction, Triad announced the first proposed divestiture, prior to closure of the deal.
The company also disclosed in a filing with the Securities and Exchange Commission that it hoped to reap $170 million from the sale of Quorum's 200-hospital management business, Quorum Health Resources.
Among the bidders for that business are at least two members of Quorum's board of directors, the company disclosed. Sources involved in the negotiations confirmed to Modern Healthcare that a lead bidder is Joseph Hutts, a Quorum board member and former chairman and chief executive officer of PhyCor, a Nashville physician practice management firm. Hutts, who resigned from PhyCor last June, did not return several telephone calls seeking comment last week. Earlier this month, PhyCor disclosed that it was in default on $196.5 million of subordinated notes.
Another potential buyer is David Vandewater, a former executive at HCA-The Healthcare Co. who has teamed up with investment firm Welsh, Carson, Anderson & Stowe, which also has two representatives on Quorum's board (Feb. 19, p. 22). Vandewater last month was named chairman of Nashville-based Behavioral Healthcare Corp., which owns 24 behavioral hospitals.
Dallas-based Triad last week signed a definitive agreement to sell Quorum's 160-bed UniMed Medical Center, in Minot, N.D., and nearby 42-bed Kenmare (N.D.) Community Hospital to Trinity Health. The company is the parent of 472-bed Trinity Hospital, the only other acute-care hospital in Minot, a town of 35,926 which is 116 miles from Bismarck, N.D., the nearest sizeable city.
The deal, contingent on Triad's purchase of Quorum, would unite two formerly bitter competitors under the same ownership. Financial terms have not yet been released, although sources involved in the deal said the purchase price is from $30 million to $50 million; $50 million is the threshold that would necessitate a filing for federal antitrust clearance. The sale is expected to close when Triad completes the Quorum deal, slated for late April or early May.
Trinity President and CEO Terry Hoff said in a written statement that the deal would "set the stage for consolidating health services in Minot and the region," although he did not provide details.
Forrest Burke, Trinity's lawyer and head of the healthcare practice of law firm Dorsey and Whitney in Minneapolis, said the market does not need two acute-care providers. "The fact is, it's not a market that supports two viable systems."
Trinity has been profitable in recent years, reporting $5.3 million of net income on $112.1 million in net patient revenue for the year ended June 30, 2000, according to Solucient, an Evanston, Ill.-based healthcare information company. Trinity Chief Financial Officer Kevin Seehafer confirmed the figures.
Quorum's area hospitals, however, have not been profitable. For the year ended March 31, 2000, UniMed reported a $1.7 million net loss on $52.9 million in net revenue, while Kenmare reported a loss of $176,491 on revenue of $1.9 million, according to Solucient. Quorum would not confirm the figures.
The two Minot hospitals have tried to buy each other on several occasions. In March 1998, the Sisters of St. Francis, Denver, sold St. Joseph's Hospital to Quorum, which renamed it UniMed. At the time, Quorum outbid Trinity, which was also interested in the hospital. Several years before, in 1993, St. Joseph's had tried to buy Trinity, although negotiations broke down.
Trinity spokesman Randy Schwan said that even though the nearest competitors to Minot's hospitals are more than 100 miles away, the integration of Minot's two facilities will increase patient choice, not decrease it, because it will bring all of Minot's physicians under one provider.
Consolidation also will allow the hospitals to invest more in new services and programs because the facilities will spend less on duplicative services, Schwan said.
Healthcare lawyer Michael Peregrine, of Gardner, Carton & Douglas in Chicago, said that the Minot deal's not requiring antitrust notification would not make it immune from review.
"When an antitrust regulator becomes aware of a transaction which has potential antitrust implications but may not trigger premerger notification filing, the regulator will contact one or both parties and request that they cooperate with the particular agency in its analysis of the deal," Peregrine said.
Triad is expected to announce more divestitures, some of which could come after it buys Quorum. If the two companies joined today, they would have 52 hospitals, but Triad has said that number is likely to come down to about 45.