Specialty surgical hospitals alone have turned out to be too narrow a niche for the company formerly known as OrthoNeuro Corp., Charlotte, N.C.
Renamed Hospital Partners of America (HPA), the company last week said it is expanding its strategy to include developing and acquiring general acute-care hospitals, in addition to surgical hospitals. HPA will seek physician partners to hold minority stakes in its hospitals.
In announcing its new strategy, privately held HPA also said it signed a definitive agreement to acquire its first general acute-care hospital from troubled Tenet Healthcare Corp., Santa Barbara, Calif. HPA will pay $25 million to obtain Tenet's Twelve Oaks Medical Center, Houston, pending regulatory approvals. Physicians will hold a minority stake in the 356-bed, two-campus hospital, HPA said.
With the deal, Tenet now has found buyers for 11 of the 14 hospitals it marked for sale or closure in March (March 24, p. 6), with net proceeds of the sales expected to be about $630 million. Two of the hospitals have closed. Tenet said it continues to negotiate to sell the remaining hospital in North Las Vegas, Nev. Including the hospitals it has agreed to sell, Tenet owns and operates 112 hospitals.
HPA is moving in the opposite direction. Founded last year by Steve Puckett, who founded heart hospital chain MedCath Corp. in 1988, HPA opened its first facility, Austin (Texas) Surgical Hospital, in September. Venture capital firm New Enterprise Associates, Baltimore, last year provided HPA with the biggest chunk of its start-up capital, said Todd Johnson, HPA's chief executive officer. He declined to say how much the firm had invested in HPA. Puckett serves as chairman of both companies.
The company hopes to make an initial public offering of stock late next year if market conditions are favorable, Johnson said. HPA would need to acquire either one large hospital or two smaller hospitals to build the company's annual revenue to around $300 million, up from projections of $180 million for 2004, he said.
Johnson said the opportunity in general acute-care hospitals was too big to pass up. "There's a lot of interest in terms of acquisitions of acute-care hospitals, and a lot of interest among physicians," he said in an interview. "It really just broadens our market opportunity."
The move also may diversify the company's assets at a time when surgical hospitals are under fire in Congress, where the issue has become part of the negotiations over a Medicare prescription drug bill. The House version of the bill requires the Medicare Payment Advisory Commission to study specialty hospitals and their effects on acute-care hospitals. The Senate version tightens the "whole hospital" and "rural" exceptions to the prohibition on physicians referring patients to facilities in which they have an ownership stake.
Tightening the screws on specialty hospitals has been a focus of the American Hospital Association's lobbying efforts this year. If agreement can be reached on the drug bill, Anne Ubl, the AHA's senior associate director of federal relations, said she expects there to be a compromise on the specialty hospital issue included in the bill. "We are optimistic," she said.
Another company keeping an eye on Congress is United Surgical Partners International, Addison, Texas. The company operates just four surgical hospitals but 54 ambulatory surgery centers in the U.S., said Brett Brodnax, chief development officer. "We will not be getting into the acute-care hospital business," Brodnax said.
MedCath would be more directly affected by changes in the self-referral law. MedCath President and CEO John Casey did not return phone calls last week. When he was hired last month, Casey said that the company will aggressively fight the "hostile efforts" being made against single-specialty hospitals (Sept. 8, p. 4).