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NME Needs an Ice Pack : Hospital Talks Put Pressure on It to Find a Merger

October 06, 1994|DAVID R. OLMOS | TIMES STAFF WRITER

The proposed merger of Columbia-HCA Healthcare Corp. and HealthTrust Inc. would create a hospital industry behemoth and put more pressure on Santa Monica-based National Medical Enterprises to either merge or be acquired.

If completed, Columbia-HCA's deal would scuttle National Medical's plans for a three-way, multibillion-dollar merger with HealthTrust of Nashville, Tenn., and Dallas-based American Medical Holdings Inc.

Such a deal, which now appears to have little chance of materializing, would give National Medical a presence in some of the nation's best markets and would vault it into a near-tie with Columbia as the nation's largest for-profit hospital company.

"This is a strategically brilliant acquisition for Columbia, in part because it prevents National Medical from completing its hoped-for" merger with HealthTrust and American Medical, Lehman Bros. analyst Mimi Willard said Wednesday in an investment advisory.

Columbia, which has been gobbling up hospital companies at a furious pace, announced its $5.4-billion preliminary agreement with HealthTrust on Tuesday, just two weeks after reports of National Medical's merger talks with HealthTrust and American Medical.

The Columbia-HealthTrust deal forces National Medical Chairman Jeffrey Barbakow to go back to the drawing board. Barbakow has said National Medical, which operates 33 acute-care hospitals in six states, needs to do something to respond to changes in the health care industry.

"I'd love to be a fly on the wall at NME today," said Jeff Villwock, analyst at Johnson Rice & Co. in New Orleans. "I think Jeff Barbakow probably woke up in a surly mood today."

Villwock speculated that National Medical could become the next target of Columbia if that company seeks to become a bigger player in the important California market. If it completes the HealthTrust deal, Columbia will own just 11 hospitals in the state. But other analysts said Columbia's offer for HealthTrust reduces the chances that Columbia would be willing to pay a price that would be acceptable to National Medical.

National Medical could still make a counteroffer for HealthTrust, but analysts say that scenario is unlikely.

More probable, they say, is that National Medical will go looking for another merger partner. Two possible partners are American Medical and Ornda HealthCorp., a Nashville-based hospital chain with a strong presence in Southern California.

"Is there another HealthTrust out there on the for-profit side? No," said Christi Sulzbach, National Medical's associate general counsel. "But you don't necessarily have to do one huge deal. There are other options."

Louisville, Ky.-based Columbia has engineered one substantial deal after another, placing it far ahead of competitors in the consolidation trend sweeping the nation's hospital industry.

Columbia is led by Richard Scott, 41, a hard-driving former health care lawyer who co-founded the former Columbia Hospital Corp. for an initial investment of $125,000. Just over a year ago, it paid $7.5 billion to acquire HCA-Hospital Corp. It has since bought Galen Health Care Inc. for $3.5 billion and Medical Care America Inc. for $1.1 billion.

Acquiring HealthTrust, its biggest rival, would increase Columbia-HCA's revenue to more than $15 billion and its number of hospitals to 311. The merged entity would own nearly 10 times as many hospital and have five times the revenue of National Medical.

The proposed merger would also create competitive woes for scores of hospitals in Florida, Louisiana, Tennessee and Texas, where Columbia-HCA would own a total of 169 hospitals.

Columbia's acquisition binge comes at a time when hospitals and doctors are trying to reorganize themselves in more efficient ways in order to drive down medical costs. By forming larger networks that provide a range of medical services, hospitals and doctors hope to gain leverage in negotiations with insurers and suppliers.

"With us getting to this size, we can make demands on the people we buy supplies from and get the best possible prices and pass them on to the local communities we serve," said David Colby, Columbia's chief financial officer.

The hospital chain's rapid growth has created concerns among nonprofit hospitals that the powerful hospital chain will capture most well-insured patients and leave the nonprofits to provide most of the care for the indigent. The not-for-profit hospitals are a likely next acquisition target for Columbia, analysts said.

"Eventually it is likely that Columbia buys everyone else," said Todd Richter, an analyst at Dean Witter Reynolds. "They will continue to build market-dominating, low-cost networks."

The Columbia-HealthTrust merger must receive shareholder approval and regulatory clearances. Gina Talamona, a Justice Department spokeswoman, said no determination had been made on whether the government will review the deal for antitrust issues.

National Medical at a Glance

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