Friday, July 27, 2007

New Hospital Parent Apparently Nothing to Celebrate

While eating lunch with friends yesterday at one of our local hospitals, I found out Community Medical Center had a brand new corporate parent. I imagined proud administrators passing out cigars to celebrate the occassion only to find out, no cigars. There wasn't even the slightest party to mark Triad Hospitals sale to Community Health Systems. Why? Then I remembered the size of the purchase and the amount of debt the company would attempt to swallow.

As separate companies Community had $1.9 billion in long term debt and Triad $1.7 billion. However as part of the deal, the mergered company took on $10.2 billion in debt.

In connection with the merger, a subsidiary of the Company entered into a new $7,215 million credit facility and issued $3,021 million aggregate principal amount of its senior notes.

It tripled its indebtedness overnight. Those new interest payments have to hurt. In 2006 Triad had $115 milion in interest expense while Community paid $104 million in interest that same year. Tripling the combined $220 million turns the Company's interest expense into $660 million. This $440 million increase alone wipes out the net income of the two entities pre-merger, $168 million from CHS and $223 million from Triad.

No wonder the boys were nervous. Spreading $440 million in interest expense across 133 hospitals equates to over $3 million per facility. That's alot of staff and services to cut, but welcome to the Bush health care blanket party where the private sector will meet your needs after it meets theirs...