February 19, 2010 in City

Clinic sale details released

CHS paid $50 million to acquire Rockwood
By The Spokesman-Review
 
Map of this story's location

CHS in the region

Community Health Systems, of Nashville, Tenn., has 34 locations in the Spokane region and employs more than 3,100 people.

CHS has spent $210 million in the region and has pledged to spend another $100 million on equipment and building upgrades.

Community Health Systems Inc. paid about $50 million to buy Spokane’s Rockwood Clinic from its 77 physician owners.

Company executives disclosed the sales price for the first time Thursday during a telephone call with stock analysts.

Rockwood administrators have kept a lid on the financial terms of the deal, which are also believed by some Rockwood employees to include job and salary guarantees for most if not all of 133 doctors and advanced medical personnel. Clinic administrators declined to comment for this story.

The December transaction folds Rockwood into an integrated health care system with Deaconess Medical Center and Valley Hospital and Medical Center, the two Spokane hospitals Community Health bought for $160 million in late 2008.

The $210 million collective sum Community Health has spent in Spokane and the region, along with its obligation to spend another $100 million on equipment and building upgrades, marks a significant investment — even for a company with $12.1 billion in revenues last year.

The Nashville, Tenn.-based company now has 34 locations in the Spokane region and employs more than 3,100 people.

The Rockwood purchase comes with the expectation that clinic doctors will turn to Deaconess and Valley for 90 percent of their hospital admissions within five years. That’s a flip from the clinic’s current practice of sending 90 percent of its hospital admissions to competitor Providence Health Care’s Sacred Heart Medical Center and Holy Family Hospital.

Wayne Smith, chairman and chief executive officer of Community Health, acknowledged that buying physician practices historically “has not been a good idea.”

Yet he assured the analysts that the Rockwood purchase would be different.

Launching an integrated health system is a new venture for Community Health, which built itself into the nation’s largest publicly traded hospital owner by focusing on snapping up hospitals in small to mid-size towns.

If the integrated health care system is successful, Community Health may use it as a blueprint for similar opportunities in other communities.

By some accounts the Rockwood price was not only a good fit for Community Health’s plans for Spokane, but a good buy, too. Rockwood’s revenues last year were about $130 million and similar patient payments are expected this year, said Larry Cash, Community Health’s chief financial officer.

Smith said the recession and investment losses suffered by some struggling nonprofit hospitals has created buying and service-expansion opportunities for financially strong firms such as Community Health. He said this economic opportunity is expected to last another 12 to 18 months.

Paying $50 million for a large clinic with $130 million in annual revenues reflects both the economic climate and the trend of doctors retreating to the financial comfort of working for large hospitals and health systems.

Cash didn’t discuss Rockwood’s profit margin, other than to say it was not expected to the meet the average of the company’s other facilities and would initially be a minor “drain” on the parent company’s profit margin. Community Health earned a profit of more than $243 million last year.

In the past two years Community health went on a spending spree. While the Deaconess deal was a major purchase, it paled to the $6.8 billion buyout of larger hospital chain Triad Hospitals.

Community Health now operates 122 hospitals in 29 states.


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