Skip to main content
Subscribe
  • Sign Up Free
  • Login
  • Subscribe
  • News
    • Current News
    • Providers
    • Insurance
    • Government
    • Finance
    • Technology
    • Safety & Quality
    • Digital Health
    • Transformation
    • ESG
    • People
    • Regional News
    • Digital Edition (Web Version)
    • Patients
    • Operations
    • Care Delivery
    • Payment
    • Midwest
    • Northeast
    • South
    • West
  • Blogs
    • AI
    • Deals
    • Layoff Tracker
    • HIMSS 2023
  • Opinion
    • Breaking Bias
    • Commentaries
    • Letters
    • From the Editor
  • Events & Awards
    • Awards
    • Conferences
    • Galas
    • Virtual Briefings
    • Webinars
    • Nominate/Eligibility
    • 100 Most Influential People
    • 50 Most Influential Clinical Executives
    • Best Places to Work in Healthcare
    • Excellence in Governance
    • Health Care Hall of Fame
    • Healthcare Marketing Impact Awards
    • Top 25 Emerging Leaders
    • Top Innovators
    • Diversity in Healthcare
      • - Luminaries
      • - Top 25 Diversity Leaders
      • - Leaders to Watch
    • Women in Healthcare
      • - Luminaries
      • - Top 25 Women Leaders
      • - Women to Watch
    • Digital Health Transformation Summit
    • ESG: The Implementation Imperative Summit
    • Leadership Symposium
    • Social Determinants of Health Symposium
    • Women Leaders in Healthcare Conference
    • Best Places to Work Awards Gala
    • Health Care Hall of Fame Gala
    • Top 25 Diversity Leaders Gala
    • Top 25 Women Leaders Gala
    • - Hospital of the Future
    • - Value Based Care
    • - Hospital at Home
    • - Workplace of the Future
    • - AI and Digital Health
    • - Future of Staffing
    • - Hospital of the Future (Fall)
  • Multimedia
    • Podcast - Beyond the Byline
    • Sponsored Podcast - Healthcare Insider
    • Sponsored Video Series - One on One
    • Sponsored Video Series - Checking In with Dan Peres
  • Data & Insights
    • Data & Insights Home
    • Hospital Financials
    • Staffing & Compensation
    • Quality & Safety
    • Mergers & Acquisitions
    • Data Archive
    • Resource Guide: By the Numbers
    • Surveys
    • Data Points
  • Newsletters
  • MORE+
    • Contact Us
    • Advertise
    • Media Kit
    • Jobs
    • People on the Move
    • Reprints & Licensing
MENU
Breadcrumb
  1. Home
  2. Providers
May 19, 2017 12:00 AM

Would CHS sell its 'crown jewel' hospitals in Fort Wayne?

Dave Barkholz
  • Tweet
  • Share
  • Share
  • Email
  • More
    Reprints Print

    The face of Community Health Systems would change dramatically if the hospital giant accepted a physician-led buyout offer for its eight hospitals in Fort Wayne, Ind.

    Though a tiny fraction of CHS's 155 hospitals across the nation, the eight hospitals that comprise the Lutheran Health Network generate 15% to 20% of struggling CHS's annual earnings before interest, taxes, depreciation and amortization, J.P. Morgan analyst Gary Taylor said in a note to investors Thursday.

    That translates to $350 million annually at an EBITDA margin of 25% on revenue of about $1.1 billion.

    "Would CHS sell the crown jewels?" Taylor asks in the title of his report.

    Up to 300 physicians in Fort Wayne, Ind., who believe Lutheran is subsidizing the rest of CHS are leading a group backed by undisclosed private-equity players to buy the eight hospitals.

    The group has made an offer to buy the hospitals, and CHS is considering it, according to Dr. John Crawford, a Fort Wayne city councilman and co-founder of Radiation Oncology Associates that is not a part of the buyout group.

    The proposal has support from at least 100 doctors practicing at Lutheran, Crawford said at a press conference on Friday.

    "If disgruntled doctors leave or open their own hospital, your (CHS) assets could be worth significantly less in a year," Crawford said in a phone interview Friday.

    But Taylor is dubious that Lutheran is a divestiture candidate.

    CHS is in the middle of a campaign to sell lower-performing hospitals and other assets to reduce a $15 billion debt burden, Taylor said. The system, the nation's second-largest investor-owned hospital company, posted a net loss of $1.7 billion in 2016 on revenue of $18.4 billion.

    Of the 30 hospitals that CHS has agreed to sell to multiple buyers, most have mid-single digit EBITDA margins, according to new CHS Chief Financial Officer Thomas Aaron. Those hospitals also are in markets where CHS only has one to three hospitals, not eight as is the case in Fort Wayne.

    Taylor said CHS has stated its intent to maintain its regional networks, such as Fort Wayne, where it has several hospitals that can provide opportunities for buying economies, sharing medical staff and building out ambulatory facilities offering convenient and low-cost patient access.

    The sale of the Fort Wayne hospitals would run counter to CHS' prevailing hub strategy, Taylor said.

    "We are skeptical (CHS) would consider selling such a profitable regional network given the company's new strategic focus on such assets," Taylor wrote.

    Franklin, Tenn.-based CHS is showing little inclination for selling the Fort Wayne jewels.

    To the contrary, the system last week announced a $500 million plan to reinvest in facility upgrades and technology at the hospitals.

    "We are very excited about the $500 million capital plan announced last week and the opportunity to make a transformative investment that will enhance patient care and expand health services in Fort Wayne, as well as bring jobs and other economic benefit to the community," CHS spokewoman Tomi Galin said in a statement.

    Beyond that, she said CHS does not comment on divestiture or acquisition activities.

    Crawford said the timing of the CHS capital-spending investment was "suspicious," as it came on the eve of the buyout offer. One of the key criticisms of the physicians trying to buy Lutheran is that CHS has failed to reinvest adequately in Fort Wayne given the importance and profitability of the division to CHS.

    Indiana, which includes Lutheran's eight hospitals and three others, is CHS' fourth-biggest market by revenue. Indiana represents about 10% of the company's revenue. It's also CHS' most profitable market.

    If it were to be sold, CHS would be left with four other regional markets of note: Florida, with 24 hospitals accounting for 15% of revenue; Pennsylvania, with 13% of revenue; Texas, at 11%; and Tennessee, at 7%, according to a CHS investor presentation shared this week at the Bank of America Merrill Lynch 2017 Health Care Conference.

    Many of the Florida hospitals were part of the disastrous $7.6 billion purchase by CHS of Health Management Associates in 2014. Those HMA hospitals have generally underperformed CHS' legacy hospitals and are a prime reason why CHS is shedding assets to pay down debt.

    The Fort Wayne hospitals might fetch a high price, said a senior executive with a competing hospital chain who asked not to be identified.

    CHS has been getting buyers to pay about 12.5 times EBITDA, Aaron told the Bank of America analysts this week.

    But once Fort Wayne is gone, there would be limited assets left to carry CHS' improvement plan, the executive said.

    The Fort Wayne doctors heading the proposed deal own a small financial stake in the hospitals, which may allow them to purchase the health system without running afoul of federal law. The Affordable Care Act and Stark act prohibits doctors from sending their patients to a hospital or facility that they owned. But the ACA has a grandfather clause that permits that ownership if it pre-dated the healthcare reform law, said Ashby Burks, a shareholder at BakerOber Health Law in Nashville.

    Burks was general counsel at a hospital company that owned Lutheran before CHS and was actually a part of the deal that saw the doctors take a minority stake in the hospitals.

    "I could see (the potential buyers) getting creative," Burks said. "I wouldn't say it couldn't be done."

    Letter
    to the
    Editor

    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.

    Recommended for You
    Patrick Blair InnovAge
    PACE could expand amid possible nursing home closures: InnovAge CEO
    Rob Allen Intermountain 23
    Intermountain's Graphite Health may be AI 'grounding point,' CEO says
    Most Popular
    1
    CMS tries luring providers to revamped Medicare ACOs
    2
    Oregon joins other states in setting ratios for nurse staffing
    3
    Blue Shield CA taps Amazon, Mark Cuban, CVS for new PBM model
    4
    A health innovation hub grows in Lake Nona Medical City
    5
    Hospital-at-home providers push for Medicaid coverage
    Sponsored Content
    Modern Healthcare A.M. Newsletter: Sign up to receive a comprehensive weekday morning newsletter designed for busy healthcare executives who need the latest and most important healthcare news and analysis.
    Get Newsletters

    Sign up for enewsletters and alerts to receive breaking news and in-depth coverage of healthcare events and trends, as they happen, right to your inbox.

    Subscribe Today
    MH Magazine Cover

    MH magazine offers content that sheds light on healthcare leaders’ complex choices and touch points—from strategy, governance, leadership development and finance to operations, clinical care, and marketing.

    Subscribe
    Connect with Us
    • LinkedIn
    • Twitter
    • Facebook
    • RSS

    Our Mission

    Modern Healthcare empowers industry leaders to succeed by providing unbiased reporting of the news, insights, analysis and data.

    Contact Us

    (877) 812-1581

    Email us

     

    Resources
    • Contact Us
    • Help Center
    • Advertise with Us
    • Ad Choices
    • Sitemap
    Editorial Dept
    • Submission Guidelines
    • Code of Ethics
    • Awards
    • About Us
    Legal
    • Terms and Conditions
    • Privacy Policy
    • Privacy Request
    Modern Healthcare
    Copyright © 1996-2023. Crain Communications, Inc. All Rights Reserved.
    • News
      • Current News
      • Providers
      • Insurance
      • Government
      • Finance
      • Technology
      • Safety & Quality
      • Digital Health
      • Transformation
        • Patients
        • Operations
        • Care Delivery
        • Payment
      • ESG
      • People
      • Regional News
        • Midwest
        • Northeast
        • South
        • West
      • Digital Edition (Web Version)
    • Blogs
      • AI
      • Deals
      • Layoff Tracker
      • HIMSS 2023
    • Opinion
      • Breaking Bias
      • Commentaries
      • Letters
      • From the Editor
    • Events & Awards
      • Awards
        • Nominate/Eligibility
        • 100 Most Influential People
        • 50 Most Influential Clinical Executives
        • Best Places to Work in Healthcare
        • Excellence in Governance
        • Health Care Hall of Fame
        • Healthcare Marketing Impact Awards
        • Top 25 Emerging Leaders
        • Top Innovators
        • Diversity in Healthcare
          • - Luminaries
          • - Top 25 Diversity Leaders
          • - Leaders to Watch
        • Women in Healthcare
          • - Luminaries
          • - Top 25 Women Leaders
          • - Women to Watch
      • Conferences
        • Digital Health Transformation Summit
        • ESG: The Implementation Imperative Summit
        • Leadership Symposium
        • Social Determinants of Health Symposium
        • Women Leaders in Healthcare Conference
      • Galas
        • Best Places to Work Awards Gala
        • Health Care Hall of Fame Gala
        • Top 25 Diversity Leaders Gala
        • Top 25 Women Leaders Gala
      • Virtual Briefings
        • - Hospital of the Future
        • - Value Based Care
        • - Hospital at Home
        • - Workplace of the Future
        • - AI and Digital Health
        • - Future of Staffing
        • - Hospital of the Future (Fall)
      • Webinars
    • Multimedia
      • Podcast - Beyond the Byline
      • Sponsored Podcast - Healthcare Insider
      • Sponsored Video Series - One on One
      • Sponsored Video Series - Checking In with Dan Peres
    • Data & Insights
      • Data & Insights Home
      • Hospital Financials
      • Staffing & Compensation
      • Quality & Safety
      • Mergers & Acquisitions
      • Data Archive
      • Resource Guide: By the Numbers
      • Surveys
      • Data Points
    • Newsletters
    • MORE+
      • Contact Us
      • Advertise
      • Media Kit
      • Jobs
      • People on the Move
      • Reprints & Licensing