Spartanburg, S.C., health system buying competitor from CHS

Spartanburg, S.C., has two acute-care hospitals serving its roughly 37,000 residents. Soon, they may be owned by the same health system.

Spartanburg Regional Healthcare System, a four-hospital system whose flagship hospital is in Spartanburg, has signed a definitive agreement with the massive, investor-owned chain Community Health Systems to buy its two-hospital subsidiary, Mary Black Health System. Mary Black has a 207-bed hospital in Spartanburg and a smaller 125-bed hospital in Gaffney, roughly 20 miles away.

The providers say that they expect the deal, the financial terms of which were not disclosed, to close by the end of the year, subject to regulatory approvals and closing conditions. The transaction includes all of Mary Black's physician clinics and outpatient services.

Spartanburg Regional wrote in a news release that it plans to hire all Mary Black employees who are in good standing when the transaction closes. Spartanburg Regional currently has about 7,000 employees, and the news release says that number will rise to 8,000 once the transaction closes.

Spartanburg Regional is a not-for-profit health system, so the deal would necessitate transitioning Mary Black's operations from for-profit to not-for-profit status.

Spartanburg Regional operates as a self-funded subdivision of the state, and does not receive tax dollars from the community, according to its website. Although Spartanburg County holds an operational governance agreement with the health system, Spartanburg Regional doesn't need the Spartanburg County Council's approval to close the deal, Jim Hipp, the county's interim administrator, wrote in an email.

"Such authority vests with the board of trustees of the hospital system," he said.

Franklin, Tenn.-based CHS, which reported $15.4 billion in operating revenue last year, has been working aggressively to sell off underperforming hospitals to pay down its heavy debt load. The company said in July it had sold seven hospitals so far this year and had definitive agreements to sell five more. This year's contemplated divestitures account for about $2 billion in revenue, CHS said.

Mary Black's Spartanburg hospital is in a much healthier financial position than its Gaffney hospital, although the Spartanburg hospital's net income and patient revenue have declined in recent years. The 207-bed Spartanburg hospital reported $6.4 million in net income on $120.5 million in net patient revenue in 2017, according to Modern Healthcare Metrics. That's compared with $8.4 million in net income on $122.7 million in net patient revenue in 2016. Its operating margin was 4.8% last year, down from about 6% in 2016, according to the Metrics data, which uses Medicare cost reports the hospital submitted to the federal government.

Mary Black's Gaffney hospital, by contrast, saw a net loss of $6.8 million on net patient revenue of just $34 million last year, compared with net income of about $835,000 on $40.3 million in patient revenue in 2016, according to Metrics data. The hospital's operating margin was -20% in 2017, down significantly from 2% in 2016.

Spartanburg Regional's flagship hospital, by contrast, is a much larger operation, having drawn $659.7 million in net patient revenue last year, along with $52 million in net income. The hospital's operating margin was -7.33% last year, down significantly from 18% in 2016.

That hospital also boasted a high occupancy rate last year: 84%, a number that's risen steadily over the years, from 76% in 2013. Mary Black's Spartanburg hospital, meanwhile, reported an occupancy rate of just 54% last year, down from 58% in 2013.

Mary Black's Gaffney hospital reported a dismal 19% occupancy rate last year, down from 23% in 2013.

Erica Brown, a member of Spartanburg's City Council, wrote in an email that some locals might be concerned the deal gives Spartanburg Regional monopoly status, but she doesn't see it that way. She said she thinks it will strengthen healthcare delivery, especially in underserved areas within Spartanburg and Cherokee Counties.

"This is particularly important as that population grows and as we have continued uncertainty with healthcare reform and rising healthcare costs," Brown said. "Spartanburg Regional has served as a pillar of quality healthcare for our community for over 90 years. This move will only help expand that reach as they continue to provide quality healthcare for all the patients they serve."

If the deal is finalized, Spartanburg Regional will operate six hospitals. Its four current hospitals include its flagship Spartanburg Medical Center, a 540-bed research and teaching hospital and Level 1 Trauma Center in Spartanburg, a 97-bed long-term acute-care hospital and skilled nursing facility called Spartanburg Hospital for Restorative Care in Spartanburg, a 48-bed acute-care hospital in Greer called Pelham Medical Center and Union Medical Center, a 143-bed acute-care hospital in Union, about 26 miles from Spartanburg.

Spartanburg Regional also operates a 113-bed long-term care facility called the Ellen Sagar Nursing Center in Union and an in-home hospice provider, among other operations.