A Tennessee division of Ascension Health and Capella Healthcare are working on a deal that flips the blueprint of the steady flow of partnerships and acquisitions between Catholic organizations and for-profit chains.
Deal would give not-for-profit ownership stake
Under a letter of intent announced last week, Ascension's five-hospital St. Thomas Health would form a joint venture with Capella that would give the Catholic system an ownership stake and role in running four Capella hospitals in Tennessee.
The deal would leave Franklin, Tenn.-based Capella as managing member and majority partner of the new venture, as well as the exclusive development partner for Nashville-based St. Thomas in middle Tennessee and southern Kentucky. St. Thomas will take joint ownership and an undisclosed minority interest in the four Capella hospitals.
The more common path has been for struggling Catholic hospitals and systems to pair with or sell to for-profit companies, such as the creation of Boston-based Steward Health Care System through sale of Caritas Christi Health Care to a private-equity firm, and the acquisition of Detroit Medical Center by Nashville-based Vanguard Health System.
“It's new in the sense that an investor-owned hospital has sold part of its portfolio and put it in a joint venture with a non-profit academic medical center,” said David Atchison, president and CEO of Chicago-based healthcare consulting firm Ponder & Co.
Yet, although this one has the roles reversed, Atchison said the arrangements remind him of two other deals. Duke University Health System, Durham, N.C., and LifePoint Hospitals, Brentwood, Tenn., this year combined so the new organization, DLP Healthcare, could acquire other hospitals (Feb. 7). For-profit Health Management Associates, Naples, Fla., in 2010 invested in three rural Florida hospitals run by Shands Healthcare of Gainesville, Fla., with HMA acquiring 60% ownership (July 12, 2010).
Those deals have similar goals, Atchison said. They help protect referrals and connect rural hospitals with larger, better-known brand names. He said he's never seen a partnership like the one proposed by Capella and St. Thomas, but added he wouldn't be surprised to see others.
The agreement includes for-profit Capella's 125-bed River Park Hospital in McMinnville, 44-bed White County Community Hospital in Sparta, 52-bed DeKalb Community Hospital in Smithville and 60-bed Stones River Hospital in Woodbury. Those hospitals would join the St. Thomas Health network, made up of 425-bed Baptist Hospital in Nashville; the flagship 395-bed St. Thomas Hospital in Nashville; 286-bed Middle Tennessee Medical Center in Murfreesboro, and 25-bed Hickman Community Hospital in Centerville.
Officials expect the partnership to launch by March 1.
Executives characterized the plan as a way to clinically integrate the area's hospitals and for St. Thomas to provide support and expand specialty service lines such as cardiac care and neurosciences at the Capella hospitals.
They also said they were careful about how they approached it. “Probably from our side, we based this on what not to do from past experiences,” Capella CEO Dan Slipkovich said. “We don't want to structure a deal when we find ourselves in six months into this finding that this doesn't work.” Flexibility was a key, Slipkovich added, because neither side knows how the payment models will evolve.
He also said the climate of uncertainty was part of what's driving the organizations together. “We know in this changing environment (St. Thomas) needs to align and to think about how health reform is going,” Slipkovich said. “What we have is kind of a regional model; we started looking at how our four hospitals best align and who's the best partner to align us with.”
Slipkovich's counterpart at St. Thomas, CEO Dr. Mike Schatzlein, likewise stressed the regional character of their approach. “The solution we came up with is for middle Tennessee,” Schatzlein said. “We have to do what's right for the folks of middle Tennessee.”
Send us a letter
Have an opinion about this story? Click here to submit a Letter to the Editor, and we may publish it in print.