WSJ gets it wrong on hospital buyouts

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Is there a “hospital bandwagon” rolling around the private equity world?  That’s the word from Josh Beckerman, who writes the Wall Street Journal’s private equity blog.   Beckerman seems to see a trend emerging here – that PE types are lurking in every hospital hallway looking for deals.

But  I’d say, personally, that he’s missed the ball.  As I see it, these PE types are opportunistic investors who are making a few mid-sized plays to cover their butt.  They don’t want to look stupid if hospitals become hot in 2014 when reform hits. In the mean time, they’ll tart up their cheap merchandise with modest capital investments and bank on a quick buck.

Beckerman’s examples of the alleged landslide include Leonard Green & Partners LP, which just picked up Prospect Medical Holdings. California-based Prospect includes five hospitals and affiliated medical groups.Vanguard Health Systems, which is backed by Blackstone Group, has picked up two hospitals based in the Chicago area, and is eyeing bankrupt Arizona Heart Institute and Detroit Medical Center.  Then there’s Cerberus Capital Management, which has set plans to buy Boston’s Caritas Christi Health Care for $830 million.

The truth is, none of these are big enough deals to create even a ripple on the national scene. I don’t know the numbers, but I doubt these hospitals are getting much of a multiple on revenues, if any. Basically, they’re junk bond investments.

Ah, I remember when former hospital magnate Rick Scott was actually building an empire, pulling together what would eventually become Columbia/HCA. Back in the early 1990s, Scott trooped around picking up dinky, underfunded hospitals in Texas and south Florida.  Eventually, Columbia scaled up, running tightly-budgeted, questionably managed hospitals into a national infrastructure.

But those were different times.

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{ 2 comments… read them below or add one }

Kathy Wire September 2, 2010 at 11:57 am

I will be interested to see if the PE groups think they have a better mousetrap, as there isn’t money to be made in marginal hospitals unless they have a process to play more effectively under different rules. We have watched a couple of groups pick up failing hospitals in our community and–surprise!–they are still failing. My guess: if PE jumps in with both feet, some will swim but more will drown.


Anne Zieger September 2, 2010 at 9:38 pm


Thanks for your comments! I agree, PE groups will fail miserably if they think they can somehow do things better just by being all smart and cool and rich. 🙂

My take is that they expect to bleed bleed marginal hospitals of key assets, starve them, then sell to those looking for cheap networks, still at a multiple of what they invested.



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