The Illinois Health Facilities Planning Board on Monday unanimously approved the sale of Michael Reese Hospital and Medical Center and Grant Hospital, despite concerns about the purchaser’s financing and historically poor balance sheet.
In giving its blessing at a special meeting, the board allowed the financially ailing hospitals to change hands from Columbia/HCA Healthcare Corp.–the third national hospital management company to own the facilities in the last decade–to a lesser known and smaller firm, Doctors Community Healthcare Corp. of Scottsdale, Ariz., and physicians from the hospitals’ medical staffs.
The new owners are expected to take over the facilities within a month.
“Boy, I’m still leery of the numbers,” said board member Thomas Beck from Chicago, despite his vote for the ownership change. “I know you are going to try to do a large marketing program to get physicians . . . but I still think it’s going to be a struggle.”
Beck and other board members were concerned about losses Doctors Community built up in recent years, including a loss of nearly $17 million last year. But Doctors Community presented updated financial information showing that the company, which owns three other hospitals outside Illinois, has a net operating income of $8.9 million so far this year.
Board members also were concerned about the bulk of the financing needed by Doctors Community and the Reese-Grant Acquisition Group to buy the hospitals.
The Reese-Grant Acquisition Group, which represents the physician purchasers, still has to garner concrete support from physicians, who are buying a $2 million stake in the hospitals as part of the deal.
The Reese-Grant group’s president, Reese pathologist Enrique Beckmann, said at least 200 physicians will buy into the hospitals.
Another $8 million in cash is being contributed by Doctors Community, while more than $70 million in financing has been obtained from National Century Financial Enterprises, a Toledo, Ohio-based lending firm that will purchase the hospitals’ receivables–their uncollected medical bills–thus financing the bulk of the transaction by buying the right to collect the unpaid bills.
The interest rate Doctors Community will pay on the loan from National Century is 12 percent, executives disclosed to the board.
The National Century financing also includes more than $25 million in hospital equipment that will be purchased and leased back to the hospitals.
“The new hospitals will have ongoing funding from (National Century) through the accounts receivable securitization program,” Doctors Community said in a written report to the board. “The new hospitals will also have working capital generated through the equipment leasing program.”
Of the more than $80 million in total cash sources, $60 million is being used to acquire the hospitals, and the balance will be used for capital improvements at the hospitals.
Because the hospitals are losing a combined $1.5 million a month, the purchasers were unable to obtain a loan from banks.
“I have concerns about the highly leveraged debt that you have, but (Reese) is in a medically underserved area and we do need this,” said board Chairwoman Pam Taylor of Danville, who cited the need expressed by the communities surrounding the two hospitals for her vote.
Beckmann and executives from Doctors Community embraced one another after receiving the final approvals for the transaction.
Although victorious, they realize the road to financial stability is uphill.
“This is going to be a difficult and a rough go for all of us, but we think it can succeed,” Beckmann said.
In addition to multimillion dollar capital improvements needed to its physical plant, Reese needs $19 million in information systems upgrades to become Year 2000 compliant, executives disclosed Monday.
Grant has relatively new software, needing an upgrade that will cost $100,000.
Board members received written assurances from the purchasers that Grant wouldn’t be closed. Grant has declined in recent years to the point where the facility doesn’t have basic obstetric services to deliver babies.
“I still have concerns about the future of Grant,” said Fred Benjamin, a board member from Chicago.
“For the sake of public access (to health-care services), I will vote for the transaction.”
