For HCA, selling five hospitals is paring less than 3% of its 190-hospital portfolio. For Capella Healthcare, buying those five hospitals is the real start of the 3-month-old company.
Nashville-based HCA said last week that it had agreed to sell the five hospitals, all smaller and more rural than the bulk of its portfolio, to Capella for $260 million. Capella, Brentwood, Tenn., said it plans to sell one of the hospitals, North Monroe Medical Center, Monroe, La., to its local competitor, St. Francis Medical Center in Monroe, so the company will have four hospitals once the deals are completed later this year.
Capella was formed in April by two former Province Healthcare Co. executives (May 9, p. 12), Daniel Slipkovich and Thomas Anderson, with a $200 million investment by private-equity firm GTCR Golder Rauner. The company was formed just as Province was being acquired by LifePoint Hospitals. Coincidentally, LifePoint also bought five hospitals, paying $285 million, that were part of HCA's 10-hospital divestiture plan announced in March.
HCA's hospitals have been in Capella's crosshairs from the start. Slipkovich, Capella's chief executive officer, said in an interview in April that the company was interested in bidding on the HCA hospitals set aside for divestiture. Speaking of rural hospitals more generally, Slipkovich said he and Anderson, the company's president, "saw the market opportunity as so positive right now that, instead of taking a month or two off, we felt it was important to get going."
HCA announced the Capella deal last week as it reported a 15% increase in profits for the second quarter despite a mixed report on volume. HCA said somewhat higher reimbursements, a one-time tax gain and continued reduction in the company's reserve for malpractice insurance were behind the rise in profits.
HCA said it earned $405 million, or 90 cents per share, in the quarter, compared with $352 million, or 72 cents per share, in the year-ago quarter. Revenue rose 4% to about $6.1 billion. Same-facility admissions were down 0.3%, but same-facility equivalent admissions were up 1.2%.
For the six months, the company earned $819 million, or $1.84 per share, up 17.5% from $697 million, or $1.41 per share, in the year-ago period. Revenue increased 4% to about $12.6 billion. Admissions and equivalent admissions rose 0.3% and 1.7%, respectively. As previously reported, a favorable tax settlement added $48 million, or 11 cents per share, to HCA's second-quarter profits. The company said it was able to reduce its malpractice reserves by $36 million pre-tax in the quarter. HCA operates 190 hospitals and 92 ambulatory surgery centers.
Darren Lehrich, a healthcare stock analyst with Deutsche Bank, said in a research report that HCA offset the mediocre patient volume with good expense control. Labor costs, in particular, declined 0.6 points as a percentage of revenue.