Issue link: https://beckershealthcare.uberflip.com/i/674245
45 FINANCE Capella, RegionalCare to Merge Into New $1.7B Company: 10 Things to Know By Ayla Ellison F ranklin, Tenn.-based Capella Healthcare and Brentwood, Tenn.-based RegionalCare Hospital Partners have an- nounced plans to merge, creating a combined company with 18 hospital campuses in 12 states. Here are 10 things to know about the deal. 1. e combined company's name will be RCCH Health Partners. 2. Under the agreement, Capella will be fully owned by Re- gionalCare, which was sold to Apollo Global Management last year. 3. Birmingham, Ala.-based Medical Properties Trust pur- chased Capella for $900 million in 2015. MPT will receive ap- proximately $390 million for its equity investment and loans made as part of its 2015 transaction with Capella. Under the agreement, MPT will also receive about $210 million in mort- gage loan prepayment for two Capella hospitals. 4. MPT's net proceeds from the transaction are expected to be about $550 million, which will be used to reduce MPT's debt. 5. Marty Rash, board chair and CEO of RegionalCare, will serve as executive board chair of RCCH Health Partners. 6. Regarding the merger, Mr. Rash said, "By creating a single, stronger organization, we'll have greater scale and stability as well as an expanded geographical reach." 7. Michael Wiechart, board vice chair, president and CEO of Capella, will serve as president and CEO of the combined com- pany. He will also serve on RCCH Health Partners' board of directors. 8. e deal is subject to customary regulatory approval and is expected to close during the second quarter of 2016. 9. The combined company would include more than 13,000 employees, 2,000 affiliated physicians and $1.7 bil- lion in revenues. 10. Rhoda Weiss, PhD, a Los Angeles-based national health- care strategy and marketing consultant, follows healthcare mergers and partnerships closely. Regarding the Capella-Re- gionalCare deal, she told Becker's, "It certainly makes a lot of sense for these two organizations that are nearly identical in size to work together. It's an exciting move for both and defi- nitely covers a wide region of the country with no overlap. It will also make this new system much more attractive for other potential partners in those 12 states they cover." Dr. Weiss has never worked for either of the organizations involved in the transaction. n Boston Children's Operating Income Plummets 71% in Q1 By Ayla Ellison B oston Children's Hospital recorded higher revenue in the first quarter of fiscal year 2016 than a year earlier, but those gains were offset by a spike in expenses, according to the Boston Business Journal. The 404-bed pediatric hospital said net patient service revenue increased $15.4 million year over year to $276.7 million in the first quarter of FY 2016. The financial boost was largely attributable to an increase in patient volume, according to the report. However, the hospital said expenses increased 10 per- cent year over year to $368 million in the first quarter of FY 2016. That growth was fueled by a 19 percent increase in supply costs, which hit $115.8 million in the first quarter of FY 2016. Boston Children's ended the first quarter of FY 2016 with operating income of $6.9 million, down 71 percent from the $23.6 million recorded in the same period of the year prior. n CHS Spinoff Issues 2016 Financial Outlook By Ayla Ellison F ollowing its spinoff from Franklin, Tenn.-based Com- munity Health Systems, Quorum Health Corp. ex- pects to record revenue in the range of $2.2 billion to $2.3 billion in 2016. CHS plans to combine 38 hospitals and its hospital man- agement and consulting business into QHC. The transac- tion is expected to close in the second quarter of 2016. QHC hospitals experienced growth in adjusted admissions and emergency room visits from Jan. 1 through March 21, increasing 1.1 percent and 3.6 percent, respectively, over the same period a year earlier. Based on a preliminary assessment of its operating results, QHC expects adjusted EBITDA to range from $265 million to $275 million in 2016. Moody's Investors Service forecasts a modest increase in fi- nancial leverage for CHS after QHC spins off, resulting from loss of EBITDA associated with the operations and the esti- mated debt repayment that CHS could make with dividend proceeds received in the transaction. The transaction will not have an immediate impact on CHS' credit ratings, and its negative rating outlook remains unchanged, according to Moody's. n