Novant Health is buying a for-profit diagnostic imaging company that the system believes is a good strategic fit along both geographic and service lines.
Not-for-profit Novant said it will purchase for-profit MQ Associates, a diagnostic-imaging-center chain better known as MedQuest, for $45 million in cash and $358 million in assumed debt. Winston-Salem, N.C.-based Novant may pay up to $35 million more, depending on MedQuests results through the end of 2008.
The geographic overlap of MedQuests 91 imaging centers with Novants markets initially drew the system into talks with the company, said Jim Tobalski, Novants senior vice president. About two-thirds of those centers are in a five-state region centered on Novants home territory in North Carolina and South Carolina.
The MedQuest facilities, including 30 in the Carolinas, fit Novants strategy of boosting its outpatient offerings and in expanding services outside of its two big tertiary hospitals in Winston-Salem and Charlotte, N.C., Tobalski said. Novant is pursuing this strategy in other ways, such as building an outlying hospital in each of its core markets and adding ambulatory centers in those outlying areas, he said.
Other large hospital operators have employed one or both of these strategies in recent years. HCA has been building or acquiring hospitals in a ring around its tertiary medical center in Nashville. The Nashville-based company also started a separate outpatient division in 2003. Tenet Healthcare Corp., Dallas, and Ascension Health, St. Louis, made similar moves to emphasize outpatient services last year.
The Novant deal is expected to be completed later this year, pending regulatory approvals. The company will file with the Federal Trade Commission for antitrust clearance of the deal and also will have to notify some state certificate-of-need programs, the system said.
Once complete, MedQuest will be operated as a wholly owned, for-profit subsidiary with few operational changes, Tobalski said. MedQuest will keep its executive team and its Alpharetta, Ga., headquarters, and will have its own board, he said. You have to let these key healthcare components that dont operate like a hospital to move forward with their best strategies, because they know their part of healthcare better than hospitals or health systems do, Tobalski said.
This corporate separation is necessary to maintain Novants tax-exempt status, said Lauren Mack, a healthcare lawyer in the San Francisco office of Sonnenschein Nath & Rosenthal. With corporate separation, the Internal Revenue Service will treat a not-for-profits for-profit subsidiary as it would any other for-profit, Mack said, with one exception. The subsidiary must ensure that its compensation is considered reasonable under the private-inurement regulations, Mack said. Also, the subsidiary cant be used to do something that the parent is prohibited from doing, such as transferring charitable assets to private parties, she added.
The seven-hospital system sees some synergies that can be achieved despite the corporate separation, Tobalski said, such as savings on equipment purchases. There is also an economy of scale in spreading the high costs of information technology over a wider base of operations, he added.