Ardent Health Services, Nashville, is venturing into a new state with a plan to buy a hospital system in Tulsa, Okla., and its soon-to-be competitors are happy to hear it.
Ardent said it would pay $281.2 million to acquire not-for-profit Hillcrest HealthCare System, Tulsa, with a commitment to invest $100 million in the system.
Hillcrest owns three hospitals in Tulsa and operates 10 other hospitals in Oklahoma through lease arrangements.
Three of the leased hospitals that are among the farthest from Tulsa-located in Coalgate, Fairfax and Prague, Okla.-will not be included in the deal, said David Vandewater, Ardent's chief executive officer. The company wants to negotiate new operating agreements with the owners of the other seven hospitals, he said.
"The other seven can fit into the network that we are establishing, but again, it's going to be dependent on the particular organization to decide," Vandewater said.
The Hillcrest system has been profitable the past two years but just barely. For the fiscal year ended June 30, 2003, Hillcrest said it had net income of $3.2 million on net revenue of $588.6 million, or a 0.5% profit margin. The results in fiscal 2002 were better, with a net income of $5.1 million on $531.7 million in net revenue, for a 1% margin.
The two main facilities in the Hillcrest system are 400-bed Hillcrest Medical Center in Tulsa and 364-bed Tulsa Regional Medical Center. Ardent officials will discuss the capital needs of the two hospitals with the physicians who practice at them before deciding where to upgrade, but the company does not expect to have to build a replacement for either hospital.
Ardent would face three main competitors in Tulsa if it completes the deal. St. John Medical Center is the flagship of a regional system owned by Marian Health System, a Roman Catholic system with headquarters in Tulsa. St. Francis Health System, which consists of two hospitals in Tulsa and one in suburban Broken Arrow, is an independent not-for-profit system. Triad Hospitals, Plano, Texas, opened SouthCrest Hospital in Tulsa in 1999.
David Pynn, St. John's president and CEO, said he hopes the deal will stabilize the Hillcrest hospitals.
"I don't think it will affect us," Pynn said of Ardent's planned investments. "Both facilities are in need of capital infusion and work on their campus. I think it will enable them to survive, and I think that's a good thing."
In a joint news release with Ardent, Hillcrest said the sales proceeds will allow it to repay its outstanding bonds and still set aside funds for a new community foundation that will consolidate funds from two other existing foundations.
Privately held Ardent said the deal is likely to close in early summer. The deal requires certificate-of-need and license-transferring approval from the Oklahoma Health Department.
For Ardent, the deal is its first significant acquisition since it closed on two deals encompassing five hospitals, a health plan and a physician group in Albuquerque in late 2002 and early 2003. Last week, Ardent's Albuquerque system, Lovelace Sandia Health System, paid $22 million to gain 38,000 commercial health plan members from Cimarron Health Plan.
Ardent owns or operates seven rehabilitation and acute-care hospitals and 20 behavioral health hospitals.