The lofty dollar amount reflects the rare size and unusual scope of NMFF, the second largest doctors' group in the Chicago area before the deal.
“You normally don't see nine-figure transactions involving physician practices,” said Adam Lynch, vice president at Chicago-based Principle Valuation, a healthcare appraisal firm. “If you think about the spectrum of practices out there, you're not going to find many as big as NMFF, so you're not going to see a price close to what they're negotiating.”
Northwestern Memorial CEO Dean Harrison and Dr. Eric Neilson, CEO of NMFF and dean of Northwestern University's Feinberg School of Medicine, jointly announced in March the intention to merge the faculty foundation and the hospital's physicians group, with only about 122 doctors, into a single entity that would be a subsidiary of the health system. Financial details about the transaction, which was completed on Sept. 1, had not previously been disclosed.
About $193.5 million of the acquisition price covers the net value of the faculty foundation's $631.7 million in unrestricted assets, after subtracting liabilities as of Sept. 1, according to the bond filing. Northwestern Memorial is accounting for the balance of the purchase price, about $37 million, as goodwill. Goodwill reflects the value of intangible assets, such as a brand name and relationships with patients.
In September, the health system paid the university $210.3 million toward the $230.5 million purchase price. Northwestern Memorial's ongoing annual payments to the university are based on the hospital's net patient revenue and financial operating results. Those payments will be at least $39.5 million a year from 2014 through 2016 and will support research and education at Feinberg, the bond filing says.
Northwestern Memorial posted $131.3 million in operating income in the fiscal year that ended Aug. 31, up 49% from the prior year. Total revenue was up about a half-percent for the year to $1.71 billion, from $1.70 billion.
The faculty foundation booked $57.8 million in operating income on $560.9 million in revenue in 2011, the most recent year in which financial results were available.
Faculty foundation doctors, who provide most of the care at the health system's two hospitals, 894-bed Northwestern Memorial Hospital in Streeterville and 201-bed Northwestern Lake Forest, voted in favor of the proposal in June.
The merger continued a series of moves to more closely align the clinical operations of Northwestern Memorial and Northwestern University. In a deal inked on Sept. 1, 2012, the hospital network agreed to pay the institution a one-time grant of $167 million as well as annual payments to support research and develop new clinical programs. Those annual payments have been replaced by the terms of the acquisition agreement.
"Northwestern Memorial pays big bucks for faculty foundation docs" originally appeared in Crain's Chicago Business.
