Nearly two years after Community Health Systems acquired Triad Hospitals, six of the eight joint ventures that Triad had with not-for-profit systems at the time of the deal have been unwound.
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Six of eight Triad joint ventures have come undone
The latest came last week as Franklin, Tenn.-based Community bought out the minority stake held by 473-bed Akron (Ohio) General Medical Center in a joint venture that operates 268-bed Affinity Medical Center, Massillon, Ohio. Terms were not disclosed.
A review of those transactions shows that Community has bought out four of its partnersincluding one that exercised its right to be bought outand two of the partners have bought out Communitys interest in their joint ventures. Two of the partnerships remain unchanged.
Wayne Smith, president, chairman and CEO of Community, and Larry Cash, executive vice president and chief financial officer, were not available last week, Community spokeswoman Tomi Galin said in response to an interview request. In some of our markets, we find its in the hospitals best interest that we become the sole owner or we divest our shares, but this is always a market-by-market decision, Galin said. We dont have a blanket strategy where this is concerned.
While Community hasnt pursued Triads strategy of forming joint ventures with not-for-profit hospital companies, the company is not broadly opposed to joint venture strategies, Galin said. As of Dec. 31, 2008, Community operated 22 hospitals that were owned by physician joint ventures, including one with a not-for-profit organization as a partner, the company said in its annual 10-K securities filing for 2008. The company also holds a minority stake in joint ventures that with fellow for-profits HCA and Universal Health Services operate three hospitals in Macon, Ga., and five hospitals in Las Vegas, respectively, the filing said. Those stakes also were acquired in the Triad Hospitals acquisition.
Texas Health Resources, Arlington, owned a 20% stake in a joint venture with Triad that developed and operated 208-bed Presbyterian Hospital of Denton (Texas). Shortly after the Triad deal was completed in July 2007, THR decided to exercise its option to acquire Communitys 80% stake in the joint venture, THR spokesman Wendell Watson said. The option came into effect by a change-in-control provision in the joint venture agreement, Watson said. One transaction consultant predicted that such provisions could trigger a sale or two when Communitys offer for Triad was announced (March 26, 2007, p. 6).
With Triad, there was a similar philosophy in how to approach the market, Watson said. We werent sure how Communitys philosophy would fit into ours. About a year elapsed between the first meeting of Triad and THR executives to discuss the idea of a joint venture until it came to fruition, Watson said. The change-in-control option left THR with much less time to discuss operating philosophies with Community executives, and that played a factor in the decision, Watson said.
(No THR executives were able to fulfill Modern Healthcares request for an interview last week, Watson said.)
For Summa Health System in Akron, Ohio, the Triad deal had no bearing at all on its interest in acquiring full ownership of 225-bed Barberton (Ohio) Citizens Hospital, said Mike Rutherford, Summas chief financial officer. The hospital fit Summas strategy to grow by expanding around the Akron region and included another outright acquisition, a management agreement to operate a county hospital and two joint ventures with physicians to develop new hospitals, Rutherford said. One of the physician joint venture hospitals has opened and the other is scheduled to open by the end of the month, Rutherford said.
The discussions on buying out the majority partner in the joint venture began while Triad was still that partner, Rutherford said. Summa felt it was awkward to be a partner in a hospital while the system was practically encircling that hospital with other development activities, he said. It had nothing to do with Community or Triad, Rutherford said. They were wonderful partners. He added, I think we would consider a joint venture in the future if the circumstances and location made sense. As long as the cultures are aligned, a marriage between a for-profit and a not-for-profit can work.
One of Communitys buyouts was initiated because the not-for-profit partner exercised a change-in-control option that required the new owner to buy out the minority partner. Willamette Community Health Solutions, the successor not-for-profit corporation that held a minority stake in 112-bed McKenzie-Willamette Medical Center, Springfield, Ore., exercised that right last year, receiving
$22.7 million, according to Communitys 2008 10-K filing. Cascade Health Solutions, as the organization is also known, did not return calls seeking comment on the decision.
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