Hospital execs now free to compete

Wednesday, May 25, 2005 at 1:00am

A new company with a potentially bright future is on the horizon in the Nashville area now that four former executives of Province Healthcare Inc. have formed Capella Healthcare Inc.

The name Capella, which means bright star in Latin, was chosen to signify what the management team expects to accomplish with the company, which is now gearing up to acquire acute care hospitals nationwide.

Four seasoned health care executives - Dan Slipkovich, Tom Anderson, Sam Moody and Andy Slusser - became available to form their own company after their former company, Province, was acquired by Bentwood-based LifePoint Hospitals Inc. last month for $1.7 billion.

Capella, also in Brentwood, is following a similar strategy as Province by planning to acquire hospitals in non-urban areas.

"There are plenty of hospitals looking to sell or be acquired in our market," said Slipkovich, chief executive of Capella and former president and chief executive of Province. "We are not pursuing the urban and suburban markets - there are plenty of folks in that area."

The company is focusing on competitive facilities with revenues of $35 million and up in areas with a population of 35,000 to 200,000, usually with no more than two hospitals, according to Slipkovich.

Capella has already found a partner in private equity firm GTCR Golden Rauner LLC of Chicago, which is investing up to $200 million in the startup. It is the same firm that helped fund Province when it was starting up in 1996. Province went public two years later.

Capella is planning to leverage the $200 million to obtain more capital. "We expect to receive $1 billion to $1.2 billion in access capital," said Anderson, president of Capella and former senior vice president of acquisitions and development at Province.

The business model has worked well before. "It is the same rural hospital strategy that has proved successful where they take under-performing facilities, bring in capital and improve their operating performance," said Frank Morgan, an analyst for the investment-banking firm Jefferies and Co.

Capella has a good quality management team that has proven itself in the past, Morgan said.

The company is already looking at a number of potential buys. "There are several hospitals we are considering," Anderson said. HCA Inc. has indicated they are divesting 10 hospitals, and there are other opportunities as well, he added.

After acquisitions, Capella's strategy is to attract the best physicians available and to add improved services plus modern technology. Often non-urban facilities don't have the required capital, physicians and technology for optimum performance, Slipkovich said.

Capella management will also bring expertise in areas such as risk management and regulatory affairs that individual hospitals may not possess, Slipkovich added.

Acquisitions are to be considered in nearly all the contiguous 48 states, Anderson said, though the company plans to stay away from California and most states in the Northeast because their business environments are not conducive to for-profit hospital companies.

Success for Capella seems to be just a matter of time. "Capella Healthcare is another example of GTCR's strategy of backing highly successful managers in attractive industries, such as the acute care hospital market," said Joe Nolan, principal of GTCR.

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