Just as the Department of Health and Human Services reported that rural hospitals are better at reducing hospital-acquired infections and score better in value-based purchasing plans, Quorum Health Corporation (NYSE: QHC) announced the sale of two of its 38 rural hospitals in October. One analyst says at least six more deals are pending.
Quorum Health was spun out of the ailing Community Health Systems (NYSE: CYH) in April 2016. Community Health took on more than it could handle in 2013, when it announced its $7.6 billion acquisition of Health Management Associates, then a for-profit, 71-hospital chain in 15 states.
With approximately 11,000 licensed beds, the price worked out to nearly $610,000 per bed. HMA’s hospitals and ambulatory surgery centers were located in small cities and urban markets, while Community Health focused on non-urban and mid-sized markets. At the time, Community operated 135 hospitals in 29 states, with an aggregate of 20,000 licensed beds.
As inpatient volumes have continued to fall, Community Health has struggled to rein in its debt, and in April 2016, finally spun off Quorum, together with Quorum Health Resources, LLC, a hospital management advisory and consulting services business, into a publicly traded company. Quorum’s second-quarter and first-half operating revenues slumped 1.6% (to $529.7 million) and 0.6% (to $1.08 billion), respectively.
Now the company is divesting some of its most financially distressed facilities. On October 3, it announced that not-for-profit Northeast Georgia Health System, which has two hospital campuses in Braselton and Gainesville, was taking over Barrow Regional Medical Center, a 56-bed facility in Winder, Georgia. The hospital posted $45.4 million in total operating revenue in 2014, and a loss of $3.5 million.
Northeast Georgia Health may know a bit more about operating rural hospitals, as it opened a new hospital in Braselton in April 2015 and saw patient volumes increase rapidly, particularly in the emergency department. Owning and operating another hospital in Barrow County just seemed to make sense.
The second hospital Quorum unloaded in October was Sandhills Regional Medical Center, a 64-bed hospital in Hamlet, North Carolina. The acquirer, FirstHealth of the Carolinas, Inc., is a not-for-profit company serving 15 counties in the mid-Carolinas through four hospitals with 534 licensed beds. Sandhills Regional becomes the fifth hospital in the system. On a trailing 12-month basis through September 30, 2015, the hospital reported approximately $33.3 million in total operating revenue, but EBITDA of just $538,895.
FirstHealth also operates FirstCarolinaCare Insurance Company, a not-for-profit health insurance plan licensed in all 100 counties in North Carolina. In September, the company announced partnerships with Raleigh-based Alignment Healthcare, to allow more Medicare beneficiaries access to its technology-enabled and integrated personalized care model in Wake County, and with Mission Health Partners, the largest Accountable Care Organization (ACO) in North Carolina.
Quorum hasn’t announced which facilities are next in line to leave the for-profit fold, but we’ll be reporting on the sales as they come.
