The timing of the RFP reflects the hospital’s current financial strength. In 2007 the hospital produced its first operating gain in five years—$1.7 million—and has posted an operating gain each year since, including $1.9 million in 2010.
“We’ve completed a financial turnaround from bankruptcy and we’re expanding services. We’ve strengthened our core clinical service lines and developed new capabilities, including orthopedics and ENT services,” explains Berlucchi.
He says the hospital needs capital investment to continue to grow. “We’re open to any opportunity, including a merger or an acquisition, that will help us meet our goals.”
Auburn Memorial is a good example of what a hospital might need to do to make itself an attractive M&A candidate. The hospital had declared Chapter 11 bankruptcy in 2007 after the departure of physicians, the loss of its OB/GYN service line, and a drop in market share. Berlucchi, who came on board after the bankruptcy, was hired in large part because of his reputation as a turnaround expert. Previously, at Elk Regional Health System in Saint Marys, PA, Berlucchi is credited with achieving 20% growth in net revenues in three years. He implemented a medical staff development plan and physician recruitment
campaign to strengthen core clinical service lines and develop new services.
Berlucchi says the details of Auburn Memorial’s turnaround are laid out in the RFP. Under his leadership the hospital successfully negotiated with the state to reinstate OB/GYN services and used state and foundation grants to invest in new equipment and other upgrades, including $5.3 million for information technology. The hospital recruited three board-certified OB/GYNs and three nurse midwives, and doubled its births from 200 to 400 over two years. In August, the hospital opened a $2.5 million renovation of its maternity floor.
RFP responses were due October 1, and two organizations had already expressed interest before Labor Day. Berlucchi says the Auburn Memorial board expects to make its M&A decision by the beginning of 2012.
Sometimes M&A deals are very straightforward. One hospital wants to acquire another hospital for a very specific reason. And no other hospital will do. That’s the case in Nashville-based Ardent Health Services’ recent acquisition of two Tulsa-area hospitals.
Ardent owns two health systems—the four-hospital Lovelace Health System in Albuquerque, NM, and the four-hospital Hillcrest HealthCare System in Tulsa. For several years, for-profit Ardent explored different ways—including building its own hospital—to access the southern Tulsa County corridor where most of the county’s residential development has occurred. The 155-staffed-bed SouthCrest Hospital is located in the heart of that corridor, and that’s the hospital David Vandewater, Ardent president and CEO, set his sights on acquiring from Community Health Systems, which is based in Franklin, TN.
Kevin Gross, president of Ardent’s Oklahoma division and president and CEO of Hillcrest HealthCare System, says the decision to acquire SouthCrest was based almost entirely on the benefits of its location. “We wanted the location; we thought we could deal with anything else as long as we had that location.”
CHS wasn’t actively shopping SouthCrest so Vandewater picked up the telephone and called CHS. “I know the people at CHS. We’re both in Nashville. I reached out to them myself.”