Suitor has reputation for improving hospitals

The proposed buyer targets hospitals that are losing patients to other cities.
By DON SHILLING
VINDICATOR BUSINESS EDITOR
The suitor of Forum Health is expected to nurse the hospital system back to health by adding services and investing in equipment and buildings, analysts said.
Community Health Systems, a fast-growing hospital operator based in Tennessee, is known for spending significant amounts of money to upgrade hospitals that it acquires, said Jason Gurda, an analyst with Bear Stearns in New York.
Its growth strategy is to take over older hospitals that have been losing patients to larger medical centers in other markets, he said. By adding services and recruiting new doctors to work on staff, the company attracts patients to return to the local hospital, he said.
Closing facilities and cutting staff isn't normally part of the plan, he said.
"Community Health will make some changes, but they are not known for having a cost-cutting approach," he said.
Frank Morgan, an analyst with Jefferies & amp; Co. in Nashville, Tenn., said he doesn't know much about Forum but expects that a takeover by Community Health would be "very good for the local hospital market."
What it's known for
Community Health is known in the industry for identifying hospitals that can be turned around and for providing focused management to make that happen, he said. Forum Health has been trying all year to cut costs to avoid losing money this year.
The clinical operations of Forum shouldn't be cut much at all under Community Health, said Andreas Dirnagi, an analyst with JP Morgan in New York. If there are cuts, they likely would be in the administration offices, where Community Health would be able to provide some centralized services.
Gurda agreed that the administrative jobs could be trimmed, but he didn't expect big cuts. Community Health mostly offers capital and strategy to its hospitals, he said.
"In the end, hospitals are a local business, and every facility has quite a lot of control over how they are run," he said.
Dick Hyde, mayor of Waukegan, Ill., is hoping his town will benefit from Community Health's taking over a hospital system there last month.
"We're expecting a lot of improvements and reopenings," he said.
One hospital in town closed a few years ago, and some services may be added there, he said. Hyde is meeting next week with Community Health officials and hopes to hear details about proposed investments, which he has heard could run between $50 million and $70 million.
Other details
Local hospitals that have some financial problems have welcomed Community Health, Morgan said.
"They are the partner of choice for nonprofit operators [that] are looking for for-profit partners," he said.
Community Health has closed deals to buy five hospital operators since April and has one other deal pending. It owns, leases or operates 76 hospitals in 22 states, focusing on rural and small-town markets.
Gurda said Community Health has a five-year plan for hospitals it acquires. In the first three years, it makes investments, adds doctors and completes targeted cost-cutting. In the next two years, it looks to increase patient volumes from those improvements.
As revenues rise, it uses those proceeds to help it fund other acquisitions, he said.
This system has helped Community Health expand without its debt getting out of hand, he said.
Community Health posted operating revenues of $1 billion in the second quarter, which was up 16 percent over the same quarter last year. The company earned $52 million last quarter, up from $41 million in the same quarter of 2005.
Its stock closed at $36.79 a share Wednesday, down 54 cents. The stock has traded between $34.94 and $40.72 in the past 52 weeks.
shilling@vindy.com