RegionalCare Hospital Partners will merge with Capella Healthcare to create an 18-hospital health system spanning a dozen states. The deal is valued at about $550 million.
RegionalCare contributes eight hospitals to the combined company. Capella brings 10 hospitals. Together, the company, to be called RCCH Health Partners (PDF), will have more than 13,000 employees, 2,000 affiliated physicians and $1.7 billion in revenue.
Marty Rash, current chairman and CEO of RegionalCare, will assume the role of executive board chair for the combined company.
In a phone interview Tuesday, Rash said combining the companies is “a merger of equals.” They operate in distinct markets with no geographic overlap. In fact, their markets are so diverse that the merger will not be subject to a federal anti-trust review, he said.
Franklin, Tenn.-based Capella operates acute-care and specialty hospital facilities in Arkansas, Oklahoma, Oregon, South Carolina and Washington. RegionalCare, based in Brentwood, Tenn., owns and operates non-urban hospitals in Alabama, Arizona, Connecticut, Iowa, Montana, Ohio and Texas.
Rash said having that geographic diversity is beneficial because the combined company will not be reliant on one state's reimbursement for its financial health.
“No one state is overweight,” he said.
Rash said the companies also have similar cultures. Both companies stress physician input in governance, with each operating national physician advisory councils at their hospitals.
That reflects an emphasis on patient quality and safety that requires daily reports to measure outcomes, he said.
Moreover, many of the managers of each company already are familiar with one another from having worked at other investor-owned and not-for-profit companies in Nashville, Rash said.
Rash considers Michael Wiechart, Capella's current board vice chair, president and CEO, a seasoned leader and has known him for years.
Wiechart will lead the new organization as president and CEO. He will also join the combined company's board of directors.
Asked whether combining the companies is a precursor to an initial public offering, Rash said the only long-term strategy is to grow the company in a healthy, profitable way.
“That's how you create real value for shareholders,” he said.
Under the agreement, the owner of RegionalCare, Apollo Global Management, will pay Medical Properties Trust $390 million for its equity investment and loans made as part of the trust's August 2015 purchase of Capella.
Medical Properties Trust also will receive $210 million in prepayment of two mortgage loans for hospitals in Russellville, Ark., and Lawton, Okla., that were also part of the 2015 transaction, the REIT said in a release today.
Rash said he expected the deal to be completed in the second quarter.