Banner Health System, Phoenix, said last week that it's divesting 10 hospitals-nearly one-third of its roster-and 19 long-term-care facilities in seven states as part of a reorganization that focuses resources on the company's high-growth areas.
The system was the second major not-for-profit system to announce plans recently to unload acute-care facilities in bunches (See story, p. 22).
Banner, which owns or leases 27 hospitals, also plans to close an administrative office in Fargo, N.D., that employs 190 people, said spokesman Dan Green. Those employees either will be laid off or offered positions in Phoenix by March of next year.
Banner was formed in September 1999 when Fargo-based Lutheran Health Systems acquired Phoenix-based Samaritan Health System in a deal valued at $345 million. Lutheran had owned all 10 of the hospitals now up for sale.
Banner's decision to sell the facilities will help the system dedicate capital resources to high-growth areas in Arizona and Colorado, Green said. Banner board members decided to divest the hospitals at a meeting earlier this month following an asset analysis that concluded Banner's "real strength" consists of hospitals in those states. Some 80% of Banner's assets are in the Colorado and Arizona markets, where the population is growing at a rate of 3% annually, Green said.
"Since these high-growth areas would consume capital going forward, that would inevitably lead to capital starvation of the smaller facilities," he said. "That would have led to an unacceptable deterioration in quality and service (at the smaller hospitals)."
He said potential buyers have expressed interest in Banner's hospitals, Green said, but he declined to name them. Banner officials hope to complete the sale of the facilities-which are in Iowa, Kansas, Minnesota, New Mexico, North Dakota, South Dakota and Wyoming-by year-end.
"It's a very ambitious goal but based on the expression of interest it's possible," Green said.
In the aggregate, the hospitals up for sale are making money, Green said, but "the asset analysis revealed that there was historical subsidization of the smaller facilities by the larger facilities in terms of corporate overhead." Among the hospitals Banner plans to sell is 32-bed Lookout Memorial Hospital in Spearfish, S.D.
"We're entirely expecting the sale to be transparent," said Bryan Lessly, a spokesman for Lookout Memorial, a hospital on South Dakota's western slope that posted 2000 net income of $104,638 on revenue of $16.6 million.
In nearby Sturgis, 25-bed Sturgis Community Health Care Center is also soon to leave its place under the Banner umbrella. Sturgis CEO Marlene Christman said she was surprised to learn last week that Banner intended to divest Sturgis.
Even so, the hospital has turned around financially since Christman took the reins seven months ago, and she's confident a buyer won't be hard to find.
"We feel we will be marketable and attractive to other healthcare facilities," Christman said.
In 2000, Banner reported net income of $54.3 million on revenue of $1.9 billion, Green said.