Monday, April 19, 2010

PPACA Passes & PEU Hospital Deals Take Off


Before President Obama could sign health reform, two major safety net hospital systems sold out to private equity underwriters (PEU's). Here are the deals:


Detroit Medical Center and its eight hospitals agreed to sell to The Blackstone Group's Vanguard Health Systems.

Boston's Caritas Christi and its six nonprofit community hospitals will sell to Cerberus Capital Management.

CCMP Capital's Legacy Hospital Partners inked a joint venture deal regarding 215-bed Wilson N. Jones Medical Center, Sherman, Texas. The hospital will be renamed.

In each arrangement, all committed capital will be invested in the asset purchased and/or used to retire tax free bonds. This departs from past deals, which put millions into community foundations.

Vanguard paid Blackstone, Morgan Stanley Capital Partners and other owners a $300 million dividend earlier this year. That's 100% of Vanguard's EBITDA, otherwise known a parental milking. PEU owned HCA borrowed to give $1.75 in dividends to KKR and investors.

My worries about nonprofit community hospitals came just before the spate of sellouts. When barbarians crash the gate, they do so in force. I knew Nancy-Ann DeParle's reform would set the table for deals. I didn't realize how quickly they'd arrive. Prior to becoming White House health czar DeParle worked for CCMP Capital Advisers and sat on the Legacy Hospital Partners board.

The shadow banking boys plan to bleed America's health care system.

Update: Sumner Regional Health System took bids from suitors, before entering bankruptcy. After shedding undesirable costs/contracts in bankruptcy court, for-profit LifePoint Hospitals will take over Sumner's four hospitals. The FTC provided an antitrust exemption for the deal.

Update 2: HCA will acquire 357 bed Mercy Hospital in Miami from Catholic Health East.

Update 3-12-11:  Forbes ran a piece on how HCA will save America's healthcare system   Like HCA's March 2011 IPO, other PEU owned hospital chains may go public, according to Fortune.

Update 5-24-11:  HCA closed on Mercy Hospital.  Terms of the deal were not disclosed.

Update 8-20-12:  Dealbook reported investors in health care support Obama.  That's no surprise.

Update 12-10-12:  BusinessInsider ran a piece on growing pressures driving hospital consolidation.

Update 2-24-14:  PEU's buying hospitals is the first niche area mentioned by Becker Hospital Review.