Banner agrees to acquire Casa Grande Regional in Arizona

Arizona's largest health system agreed to an $87 million deal for Casa Grande (Ariz.) Regional Medical Center, which filed for Chapter 11 bankruptcy Feb. 4.

Banner Health, which owns and operates two dozen hospitals in seven states, would acquire Casa Grande Regional's assets and certain liabilities, the distressed hospital's court records show. The deal must be approved by the court.

The deal follows failed efforts by Casa Grande to raise cash, refinance its debt and one prior attempt at a “strategic partnership” with a for-profit chain, the bankruptcy court records show.

Casa Grande Regional cited a cut to Arizona's Medicaid reimbursement and eligibility as one reason for the hospital's bankruptcy, including the state's 2011 decision to halt Medicaid enrollment for childless adults. Medicaid accounts for roughly 21% of the hospital's revenue. The policy changes cut the hospital's revenue by $11 million from 2011 to 2013, court records said.

The hospital closed its books on fiscal 2013 last June with $100.3 million in revenue and an operating loss of $13.4 million. Lower Medicare payments that began last year under a federal deficit reduction deal also contributed to the hospital's financial decline, the records showed.

Banner Health was one of four bidders on the hospital and was selected for its financial strength and not-for-profit mission, the court records said.

The health system reported operating income of $298.5 million on revenue of $4.9 billion in 2012, the most recent financial data available. For the first nine months of 2013, Banner Health reported operating income of $196.1 million on revenue of $3.8 billion.

In December, Banner loaned 187-bed Casa Grande Regional $3.3 million for operations and pledged another $6.2 million in financing, which the hospital said was critically needed to pay salaries, medical supply vendors and other operating costs. If the deal closes, the loans will be forgiven, the records said.

Banner Health executives will meet in coming weeks with the distressed hospital's doctors and employees, according to a news release on the deal (PDF) to a news release on the deal.

Follow Melanie Evans on Twitter: @MHmevans