Things to Know About the Proposed CHS Acquisition of HMA
August 8, 2013
Publications
Things to Know About the Proposed CHS Acquisition of HMA
by Heather Stauffer of the Central Penn Business Journal
August 8, 2013
Last week brought big news — namely, a proposal by Community Health Systems Inc., which has one hospital in our coverage area, to buy Health Management Associates Inc., which has three hospitals in our coverage area.
I am venturing no predictions, but as you consider the issue, here are some things to know.
From the mouths of CHS execs
Here’s an excerpt from a conference call in which they discussed the deal.
Gary Lieberman, analyst at Wells Fargo Securities LLC: Congratulations on the deal. Can you talk a little bit more about the synergies and where you expect the primary synergies to come from?
Larry Cash, EVP and CFO at Community Health Systems Inc.: Yes. I’d say you’ve got the overhead reduction, there’s a couple hundred million dollars of overhead reduction there that you’ve got, and then you’ve got the supply management, which there will be some supply activity when you put two companies together and buy. I mentioned the case management and length of stay opportunities we think we see and a couple of — for instance, their (inaudible) is slightly a little bit under ours and length of stay is above. A couple of areas of revenue cycle management. I know we’ve got our internal collection agency, which does a very good job at an effective rate of about half of external vendor rates with 500 people. They collected $250 million last year, we’ve got eligibility screening services, which is over 200 employees, takes care of 80 of our hospitals. I believe that HMA outsources that and think we do it for about a third less than we do it external costs, so that’ll be an opportunity. And that’s also an opportunity on health care reform as that group will help us to grow people from Medicaid. Then you’ve got clearly a large percentage of your overlap of audit fees and insurance and insurance costs and things of that nature. But that’s a pretty good description of where I think the synergies will come from.
Wayne Smith, chairman, president and CEO at Community Health Systems Inc.: Gary, I also wanted to make sure that people understand that we’re sensitive to all the employees in this organization, including the corporate office, and we will have a process where we work through whatever might happen in terms of the future and how we might design our organization going forward.
Lieberman: Do you think there are any potential synergies on any of the legal issues that are affecting both companies? It would seem like there’s at least some similarity between the two and do you think there’s any advantage or any opportunity to consolidate the issues of both companies into one matter?
Cash: One of the things we do on the CVR is to be sure we keep separate efforts of how that’s handled and separate legal expenses. There could be a small amount (inaudible).
Lieberman: Great. Thanks a lot, guys.
From an industry publication
I found this a helpful overview: “9 Things to Know About the CHS-HMA Merger.”
From onlookers
Dennis Hursh is principal of Hursh & Hursh PC, a legal practice based in Middletown that focuses on physicians’ professional needs.
“A few physicians have been telling me that they thought HMA was in play,” Hursh says. CHS doesn’t have a big presence here other than Memorial Hospital in York, which it acquired last year. But Hursh sees in Memorial reason for optimism.
“They kept their local administrator, who was excellent; it seemed like she just suddenly had more capital and could do more things,” Hursh says. If CHS were concentrating solely on the bottom line, he says, he thinks things would look different: “It leads me to believe they really are more of a community player.”
However, Hursh says, the HMA hospitals positions may not be exactly analogous to Memorial’s, so a hands-off, here’s-the-funding-you-need approach may not be what is called for in this plan.
John Greenleaf III is a health care attorney of the Harrisburg-based firm McNees Wallace & Nurick LLC.
Greenleaf said he’s interested to see how the parties navigate antitrust concerns, particularly as CHS already has more than a dozen hospitals in Pennsylvania.
“They operate in 29 states,” he says. “You’ve got federal and then you’ve got antitrust regulations in all the states.”
There’s an interesting dynamic at work, in Greenleaf’s view, as with one hand the Affordable Care Act is encouraging large-scale and ongoing consolidation in health care, and on the other regulators are taking increasingly stringent looks at the antitrust implications of such mergers.
“A lot of the consolidation that the ACA sort of encourages, it works against the antitrust laws and vice versa,” he says.
The deal will be closely watched by insurers, physicians and health systems, Greenleaf says, and he expects York-based WellSpan Health will take a particular interest.
“WellSpan was very much on edge when CHS came in and acquired Memorial,” Greenleaf says. WellSpan itself “is growing by leaps and bounds,” and as it is working toward an affiliation with Ephrata Community Hospital, the HMA/CHS deal would “put CHS in WellSpan’s backyard, both in York and in Lancaster.”
Greenleaf says the most he has heard about CHS is from some physician groups in the Scranton area, who have been “pleasantly surprised” following “a lot of animosity when CHS came in there.” He’d be surprised to see wholesale administrative changes, he says, because it sounds as if the emphasis will be on efficiency.
HMA has battled some legal issues, with Carlisle Regional Medical Center figuring largely in a “60 Minutes” episode in December. Asked if he thought a deal would help HMA hospitals on that front, Greenleaf says he isn’t sure: “CHS didn’t have a ’60 Minutes’ special done on them, but they’ve been investigated for some of the same things.”
CRMC has made a point of addressing criticisms lately and reports much effort on performance improvement and quality. But, Greenleaf says, with the publicity about the deal, the issue is getting attention again.
“I have no insight on whether there is legitimacy behind it,” he says.
Speaking of that deadline, the Department of Health and Human Services’ inspector general recently did a report on how testing the information technology security is going. It’s interesting reading.
The insurer says the program has been extremely popular. Would you consider a changeup like that?
By the way, have I mentioned that I’m really eager to have actual results to report instead of predictions?
Heather Stauffer covers Lancaster County, nonprofits and health care. Have a tip or question for her? Email her at heathers@centralpennbusiness.com. You can also follow her on Twitter, @StaufferCPBJ.
