Debt bloated Community Health Systems announced the planned sale of eight hospitals in three states to private equity owned Steward Health, an affiliate of Cerberus Capital Management.
Community's announcement offered
Wayne T. Smith, chairman and chief executive officer of Community Health Systems, Inc., said, “This transaction is a significant step in our strategic work to optimize our portfolio and operations for the future. These hospitals play an important role in their communities and can benefit from Steward Health Care’s community-based care model going forward.”Steward's press release stated:
“We look forward to bringing our integrated care model to communities in Ohio, Pennsylvania, and Florida,” said Ralph de la Torre, MD, Chairman and CEO of Steward Health Care.Health care officials in Ohio, Pennsylvania and Florida will have an opportunity to ask questions about the deal. Steward's integrated care model in Massachusetts had the system selling its hospital facilities to a REIT for $1.2 billion and leasing them back. This deal returned Cerberus' initial investment in Steward and more. Cerberus made more money off Steward by charging annual management fees, deal fees and likely bled the hospital system via dividends/special distributions.
State health officials should ask about the potential impact of Steward enacting these same strategies on the eight CHS hospitals. KKR's ownership of hospital giant HCA added $15 billion in health care costs from additional interest expense and dividends alone.
Neither party has shared the price or how Steward/Cerberus plans to structure/finance the deal. CHS will need to share information with Wall Street analysts and shareholders so I expect a number will be revealed.
There are few economies of scale in having hospitals spread out over four states. However, Steward will hire more overseers for their growing healthcare plantation:
De la Torre said he didn’t expect there to be layoffs as a result of the acquisition, though the health system will be hiring more people in both Massachusetts and each state to help oversee the operations.Fifty eight percent of CHS employees approved of CEO Wayne Smith. They may be disappointed to learn only eighteen percent of Steward employees approve of CEO Ralph de la Torre.
That's a 40% reduction in leadership respect. CHS employees will learn how their new boss earned this level of disdain.