But the interest is more widespread than Steward, extending to the Nashville-area companies that form the heart of the investor-owned subsector of the hospital business. That has been made clear by the events in neighboring Rhode Island, where 133-bed Landmark Medical Center, Woonsocket, and its sister facility, 70-bed Rehabilitation Hospital of Rhode Island, North Smithfield, are in a court-supervised sales process. In February, investor-owned RegionalCare Hospital Partners, Brentwood, Tenn., signed a letter of intent to purchase the hospitals. Last week, according to Landmark, three additional investor-owned companies lodged bids to acquire the two hospitals and a fourth for-profit, HealthSouth Corp., Birmingham, Ala., made a bid to acquire the rehabilitation hospital.
“New England is really changing at the moment,” said Trey Crabb, president of Health Strategies Partners in Nashville. “Watching Massachusetts consolidate so rapidly right now is really amazing and interesting.” In Connecticut, Crabb added, the consolidation is among tax-exempt hospitals, rather than with investor-owned companies.
Maureen Spivack, managing director of healthcare investment banking for Morgan Keegan & Co., said investor-owned hospitals have been slow to catch on in the Northeast because of some particular characteristics of the region. “It's slower moving. It's unionized,” Spivack said. “It has a lot of factors that are somewhat unique to the Northeast—Massachusetts in particular, with the medical schools and the academic medical centers.”
The Rhode Island Superior Court overseeing Landmark's sale will conduct a hearing on the bids April 14 and 15. The other bidders include two companies both based in Franklin, Tenn., Capella Healthcare and Transition Healthcare Co., and Prime Healthcare Services, Ontario, Calif. All of Prime's hospitals are in California.
Crabb believes it is only a matter of time before Steward moves beyond Massachusetts. The company already has made overtures to Jackson Health System in Miami, offering a deal worth $1.1 billion to acquire the struggling public hospital system (Feb. 28, p. 8). A hospital company probably needs a minimum of 10 hospitals to get the scale needed to make the investment worthwhile, in part because the greater scale allows the company to spread its corporate costs over a larger base of hospitals, Crabb said. “The market view is that their growth funds are unlimited,” he said.
Moreover, a lot of systems are in the same situation as Caritas Christi and Jackson—urban systems struggling to obtain capital—but not that many of the hospital companies are interested in urban markets, Crabb said.
Spivack said it will be important for Steward to look not only at its overall scale but what she called “competitive mass” in any new markets it enters. “Healthcare is a local market,” she said. “So it's understanding where patients come from, how they consume healthcare services and where do they go when they leave. If you understand the flow of patients, then you'll know where you have to be.”