Two Kansas City area hospitals to be sold

07/28/2014 1:27 PM

07/28/2014 6:03 PM

Carondelet Health, owner of St. Joseph Medical Center in Kansas City and St. Mary’s Medical Center in Blue Springs, announced Monday it had signed a letter of intent to sell the hospitals to Prime Healthcare Services Inc.

Carondelet, a part of Ascension Health, a Catholic health care system, had been trying to sell the two hospitals and some of its related facilities for at least two years.

An attempt to become part of the HCA Health Midwest System was halted earlier this year when it appeared that federal regulators wouldn’t approve the transaction because it would have made HCA too large a player in the Kansas City hospital industry.

The companies said terms of the new deal were confidential and there will be no additional disclosures until a definitive agreement had been reached.

Prime Healthcare already owns Providence Medical Center in Kansas City, Kan., and St. John Hospital in Leavenworth, acquired from the Sisters of Charity of Leavenworth Health System in 2013.

Under terms announced Monday, Prime Healthcare won’t purchase the three Carondelet Health long-term care facilities — Carondelet Manor, Villa Saint Joseph and St. Mary’s Manor. Those facilities and the charitable foundations of St. Joseph and St. Mary’s would remain part of Ascension.

Michael Dorsey, interim chief executive officer of Carondelet Health, said the health system was “confident that this change will enable the long-term success of Carondelet Health.”

Prem Reddy, chairman, president and CEO of Prime, said his company’s “award-winning clinical and operational expertise combined with Carondelet Health’s dedicated physicians, nurses and employees” will allow the organizations “to continue their legacy of healthcare excellence.”

Prime Healthcare is based in Ontario, Calif. Prime Healthcare Services, its subsidiaries, and its nonprofit Prime Healthcare Foundation have more than 30,000 employees. The company owns and operates 27 hospitals in seven states.

Ascension and HCA said in February that they called off a previously announced acquisition attempt because the Federal Trade Commission had signaled that it wouldn’t approve the deal. HCA Midwest is the area’s largest hospital system, controlling more than one-fifth of the local market.

Carondelet has operated the nonprofit St. Joseph and St. Mary’s hospitals since 2002. St. Joseph is licensed for 310 beds, but only operates 180 of them, and employs 1,160; St. Mary’s is licensed for 146 beds, staffs 80 of them, and employs 548. Another 174 employees serve both hospitals.

“With today’s announcement by Carondelet of intent to sell to Prime Healthcare Services, it is our hope that Prime Healthcare continues the good work that St. Joseph Medical Center and St. Mary’s Medical Center have done to take care of all of those in their communities, especially vulnerable populations,” said Bridget McCandless, president and CEO of the Health Care Foundation of Greater Kansas City, one of two area foundations created by large philanthropic proceeds when the nonprofit Health Midwest Hospitals were sold to HCA.

There is no indication that a similar philanthropic windfall will occur from the St. Joseph and St. Mary’s sales.

However, IRS records for the fiscal year ending in June 2012 show that St. Joseph’s assets exceeded its liabilities by $126 million, and St. Mary’s had net assets of $42 million. Both hospitals operated comfortably in the black that year. St. Joseph’s ran a $13 million surplus on revenues of $192 million that year; the smaller St. Mary’s had a surplus of $3 million on revenues of $90 million.

According to a 2013 report by the market research company HealthLeaders InterStudy, Carondelet Health held about 7 percent of the Kansas City hospital market.

Prime Healthcare has been the target of federal investigations of its Medicare billing practices and for alleged violations of patient privacy. A former company executive filed a federal whistleblower suit against the chain, claiming Medicare overbilling. Prime called the allegations “speculative nonsense” in a statement responding to the suit.

But the controversies have not stopped Prime Healthcare from aggressively pursuing hospital acquisitions nationwide. In recent days, it has emerged as a bidder for the six northern California hospitals operated by the Daughters of Charity Health Systems.

The company recently completed the purchase of a hospital in Michigan. And earlier this month, a judge approved the sale of St. Mary’s Hospital in Passaic, N.J., to the chain. Prime Healthcare also is awaiting the state’s approval to buy a hospital in Newark and three others in the New Jersey suburbs.

Prime Healthcare’s expansion is not favored by the Service Employees International Union - United Healthcare Workers. The union has ongoing disagreements with its hospitals, particularly in California, and has posted on its website that the company “has a shameful history of buying struggling hospitals, then laying off large numbers of staff and reducing patient services in order to increase profits.”

Some layoffs did occur at Providence and St. John’s after the Prime acquisitions, mostly attributed to duplication of administrative services, although a few direct-care workers were affected because of what company a spokeswoman attributed to “overstaffing” in certain areas.

But Providence has beefed up staffing, particularly in emergency services, since the initial cuts, said Kathy Conwell, director of marketing and public relations.

Conwell said Providence now staffs 170 of its 400 licensed beds, and St. John’s staffs 40 of its 76 licensed beds. The two hospitals employ 1,306 workers, she said.

To reach Diane Stafford, call 816-234-4359 or send email to stafford@kcstar.com.

To reach Alan Bavley, call 816-234-4858 or send email to abavley@kcstar.com.

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