Until the recession shattered those plans, Brideau and Petasnick had been working for a long time to combine their Milwaukee-area hospitals in a new joint not-for-profit corporate partnership under the name Progressive Health. But the idea has been shelved for the time being.
This thing hit like a tsunami, says Petasnick, president and chief executive officer of 451-bed Froedtert Memorial Lutheran Hospital, which is part of the regional system Froedtert and Community Health. A management team can handle only so much at one time, Petasnick adds, and no one in his organization has navigated through such uncertain, dangerous waters.
Brideau is president and CEO of three-hospital Columbia St. Marys, a regional subsidiary of St. Louis-based Ascension Health. He notes that Columbia St. Marys, itself, is the product of a long-term joint operating agreement, so he knew that such partnerships tend to be very complex, requiring a high level of corporate introspection. In the end, its worth it. But to do that kind of work, out of necessity, it forces you to be internally focused, Brideau says. It was the right idea, wrong time.
Last year was the wrong time for one thing in particular in the healthcare worldtrying to issue tax-exempt debt. The shock waves that started with the auction-rate securities in the winter worked their way through the rest of the tax-exempt sector by fall. In October, Baptist Health Care Corp., Pensacola, Fla., tried to sell bonds to finance its $245 million acquisition of HCAs 339-bed West Florida Hospital, Pensacola, and refinance some existing debt, but that month saw no major healthcare bond issues completed. Earlier this month, Nashville-based HCA canceled the deal because Baptist Health couldnt finance the transaction (Jan. 12, p. 12).
These are just two examples of how frozen credit markets slowed dealmaking in 2008, analysts say, and Modern Healthcares 15th annual mergers and acquisitions report bears that out. The report, which covers acquisitions, joint ventures, long-term leases and mergers, details 91 hospital deals that were announced or completed in 2008 (plus Jan. 1, 2009) and affected a total of 139 hospitals, compared with 103 deals and 214 affected hospitals in 2007. Unlike the previous two years, 2008 wasnt anchored by a multibillion-dollar deal. The year before, 2007, included Community Health Systems acquisition of 52-hospital Triad Hospitals and 2006 included the 172 hospitals involved in HCAs leveraged buyout.
The continuing tight credit markets exacerbate the problem that tips many struggling not-for-profits into a salelack of access to capital, says Carsten Beith, a managing director with Cain Bros. Other analysts agree that tight credit will have more hospitals and systems looking to sell. What divides the analysts, however, is who will be the buyers and will they be ableor willingto bring any cash to the table.