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HCA acquires hospitals; Community Health and Tenet divest assets

HCA Healthcare Inc. has taken advantage of Community Health Systems Inc.'s 30-facility divestiture plan.

Community Health executives announced in the first quarter a plan to sell 30 hospitals in 10 transactions. In addition to those facilities, which bring in about $3.4 billion a year, the company will pursue the sale of hospitals accounting for at least $1.5 billion of net revenue, Chairman and CEO Wayne Smith updated during the company's second-quarter earnings call Aug. 2.

Community Health received about $227 million of cash proceeds from divestitures after the close of the quarter in addition to the $921 million received in the quarter and used the money to repay a portion of its term loans, according to an Aug. 3 note from Mizuho analyst Sheryl Skolnick. The company said it had $14.7 billion in long-term debt at the end of the quarter.

HCA Healthcare announced plans to acquire Weatherford Regional Medical Center, a 103-bed facility, located 30 miles west of Fort Worth, Texas, and Highlands Regional Medical Center, a 126-bed facility, in Sebring, Fla., in July. Both facilities are being purchased from Community Health.

Credit Suisse analyst Scott Fidel has an "underperform" rating for Community Health, citing a high level of execution risk for the company given industry pressures and the list of operational undertakings built into guidance, according to an Aug. 2 note.

HCA also completed the acquisition of three Texas-based hospitals from Tenet Healthcare Corp. for $750 million in cash on Aug. 1. HCA plans to close the previously announced acquisition of Memorial Health System in Savannah, Ga., by the end of the year.

"We’re not convinced that buying hospital assets in the long run is right, given our concerns about long-term volume and payer mix trends and about the amount of time it likely will take to turn these assets around, even with HCA’s strong network position and commercial managed care revenues per inpatient admission," Skolnick said in a July 25 note.

Skolnick has a "buy" rating for HCA following second-quarter results and a "neutral" rating for Community Health.

In addition to selling hospitals to HCA, Tenet acquired a minority position in a new short-stay surgical hospital in Taylor, Texas, an expansion of the company's partnership with Baylor Scott & White Health. Tenet now has 21 surgical hospitals in the company's portfolio, Trevor Fetter, chairman, president and CEO, said on the company's second quarter earnings call Aug. 8.

Four major hospital projects also came online in July for Tenet in Florida, Michigan and Texas, according to Fetter. Beyond those facility enhancements, the company continues to improve its portfolio by exiting nonstrategic business lines and markets, Fetter said, noting the company's recent divestiture to HCA.

Tenet executives believe that volumes will get better because of the new online hospitals and from Humana Inc. returning to in-network status June 1. Fidel has a "neutral" rating for Tenet, driven by shrinkage in the public insurance exchanges and lack of member growth in the Medicaid market contributing to softer volumes in the quarter.

Behavioral health facilities

Universal Health Services Inc. will continue to look for in-market hospital growth opportunities, whether they be acquisitions or capital capacity expansion, Steve Filton, CFO and executive vice president, said on the company's earnings call July 26.

"The challenge to that is we're in a relatively limited number of markets, and that means that there are a relatively limited number of hospitals that might be available to us," Filton said.

Acadia Healthcare Company, Inc. added 91 beds in the second quarter, which is on pace with the company's goal to open 800 new beds during 2017 in existing facilities. The inpatient psychiatric and behavioral healthcare company also plans to open three de novo facilities in the second half of the year, Joey Jacobs, chairman and CEO, said on the company's earnings call July 28.

"In the third quarter alone, we anticipate opening more than 250 beds as well as adding beds to our existing facilities," Jacobs said. "We are continuing to actively evaluate additional acquisitions, primarily in the U.S., and we believe that we are well-positioned to fund our acquisition strategy."

Acadia said the company aims to add 7% to 8% of growth through acquisitions or joint ventures.