Shortly after writing about Ventas’ (VTR) expanding hospital business (and skilled nursing facility spinoff), Community Health Systems (CYH), one of the largest hospital operators in the country, announced plans to spin off 38 of its hospitals along with its hospital management and consulting arm Quorum Health Resources LLC. The new company will take on the Quorum name, except the word ‘Resources’ will be replaced with ‘Corp’. Most of the 38 hospitals going to Quorum are based in population centers with less than 50K people making the majority of them the sole provider of care in the area. In total, the new company has 3,635 licensed beds across 16 states and the list of facilities can be found in the press release. Financially, what will become Quorum generated net revenue of ~$2.1b and adjusted EBITDA of ~$255m in 2014. According to CEO Wayne Smith, ‘this transaction will allow Quorum Health Corp.’s hospitals to focus on the changes in the healthcare delivery system, which are different in smaller community hospitals than in our larger and more urbanized markets.’ Rural hospitals are a niche space and they often face issues raising capital and recruiting talent, challenges that the new company will have to tackle.
The idea behind the spinoff is that the parent company wants to sharpen its focus on larger markets and regional networks. The strategy fits with last year’s acquisition of Health Management Associates and as this ModernHealthcare piece notes, only four of the hospitals acquired in that deal will be going to Quorum. They like those properties. CYH also reported strong earnings the other day and raised its full year guidance due to achievement of synergies in the HMA deal and some other factors.
The spinoff is expected to be completed sometime during Q1 of 2016.
Disclosure: Author holds no position in any stock mentioned.