Hospitals need capital to meet demands as the industry undergoes transition—a market dynamic Eichelberger said private-equity firms find attractive. Oak Hill Capital agreed to invest $400 million and Ascension pledged another $100 million toward deals, he said.
In the event the partners find new buyers for the for-profit Catholic system or decide to take the company public, Ascension will hold onto 5% of the company, Eichelberger said. That will ensure Catholic hospitals have a Catholic sponsor.
Falcon Investors, the private-equity owner of MetroSouth Medical Center in Blue Island, Ill., acquired MetroSouth Medical Center, formerly St. Francis Hospital & Health Center, which was owned by SSM Health Care, a not-for-profit Catholic health system that was moving to close the money-losing hospital.
David Reis, Falcon's CEO, said he looked for another Illinois hospital operator—not another private-equity firm—as a potential buyer. Falcon agreed in December to sell MetroSouth Medical Center for a profit to Community Health Systems, a for-profit hospital chain based in Franklin, Tenn., that owns eight Illinois hospitals.
Hospitals require expertise that private-equity firms lack and hospital operators will reinvest in ways more short-term investors will not, he said. “I think there are easier ways for private equity to try to earn a profit” than a stand-alone hospital.
Reis, who has experience with nursing homes and continuing-care communities, said Falcon Investors relied on a hospital turnaround company to operate MetroSouth.
Reis said he plunged into hospital ownership after another buyer for St. Francis backed out. Falcon benefited from due diligence conducted by a prior suitor, he said. Turnaround efforts for MetroSouth benefited from the closure of Michael Reese Hospital in Chicago, which allowed MetroSouth to expand services, he said.
Only after he owned the hospital did he realize how complicated it would be to operate, and he would not try it again unless presented with similar circumstances, Reis said. “Some beds are more complicated to run than others,” he said. “Hospital beds are the most complicated to run.”