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Financial Troubles Push HPA to Put Hospitals on Market: HEALTH CARE

July 4, 2008

By Lynn Cook and Purva Patel, Houston Chronicle

Jul. 4–Historic St. Joseph hospital in downtown is on the block again.

Hospital Partners of America, the Charlotte, N.C.-based company that bought the facility from Christus Health Gulf Coast less than two years ago, has retained Merrill Lynch to shop it around in the hopes that a new buyer can “take it to the next level,” according to St. Joseph CEO Phil Robinson.

HPA is suffering from liquidity problems and is trying to sell all of its hospitals, but Robinson said St. Joseph Medical Center is financially healthy.

Patrick Carrier, regional CEO of Christus Health Gulf Coast, said he hopes a new buyer continues to operate the hospital.

“We did our best and due diligence to try to find someone who could continue to operate the hospital two years ago,” Carrier said. “We regret that it is being sold, but hopefully they will find a buyer who can continue to run it as a hospital.”

The nonprofit has no intention of buying it back, Carrier said.

The fate of St. Joseph was called into question in late June when HPA shuttered its River Oaks Hospital, which had two campuses in southwest Houston.

HPA bought those hospitals from Tenet Healthcare and rebranded them under the River Oaks moniker. They are better known as the former Twelve Oaks and Sharpstown General hospitals.

HPA’s River Oaks Medical Center subsidiary, which operated those two campuses, filed for Chapter 11 bankruptcy protection in a Delaware court Wednesday.

HPA bought the River Oaks hospitals four years ago in conjunction with a group of physician investors who have lost their investments.

According to the bankruptcy petition, River Oaks notes it has more than 1,000 creditors that it owes between $100 million and $500 million.

The hospital said it has between $50 million and $100 million in assets, but notes it does not expect to have funds available to pay unsecured debtors once administrative and other expenses are paid.

Court records list Medical Properties Trust, which owns the River Oaks hospital buildings and land, as an unsecured creditor, but doesn’t list the amount owed.

Steve Hamner, chief financial officer of Medical Properties Trust, declined to comment on the size of the company’s claim. The company also owns the building that houses HPA’s Shasta Regional Medical Center in California.

Robinson said the River Oaks closure and subsequent bankruptcy have no bearing on St. Joseph, which is the oldest hospital in Houston.

“They are totally separate deals. There is no direct relationship,” he said, adding HPA has invested $15 million in St. Joseph’s facilities.

HPA paid $125 million for St. Joseph in 2006, HPA spokeswoman Fritz Guthrie confirmed.

Liquidity problems Even though St. Joseph is licensed to operate close to 800 beds, when HPA took it over, only 250 beds were open.

Since then Robinson said the hospital has expanded to 400 beds.

Robinson said liquidity issues have dogged the hospital company in recent months, which prompted HPA’s board to offer St. Joseph and its other facilities — including Austin Surgical Hospital, Trinity Medical Center in Dallas and Shasta Regional Medical Center in Redding, Calif. — for sale.

“We’ve done so much. It is in such a better place than it was when we bought it,” Robinson said.

“St. Joseph is poised to really go to another level, but quite frankly, we need a stronger parent company to do that.”

Joe Lupica, president of Stroudwater Capital and an adviser to Christus on the St. Joseph sale two years ago, was surprised to learn HPA wanted to sell, but said that in the current tough environment, it’s rare for any downtown hospital to open 150 more beds on the same campus.

“Clearly it’s a difficult environment” for reimbursements, he said.

“No matter what happens, I know that medical staff down at St. Joseph, and they will be excellent guardians of health care in this community.”

‘Houston’s birthplace’ St. Joseph was founded in 1887 by the Sisters of Charity of the Incarnate Word, a Catholic Order tasked with providing “Christ-centered, compassionate health care.” Even today it is often referred to as “Houston’s Birthplace” because there was a time when one of every three Houstonians was born there.

HPA owns roughly 80 percent of St. Joseph — both its hard assets and its ongoing operations.

A group of 102 doctors own the remaining equity.

HPA hopes to sell its stake to another hospital operator who will continue to partner with the physician investors, Robinson said.

“Our hope is the physician investors come out of this intact,” he said.

Dr. Eric Haas, a surgeon with privileges at St. Joseph who is not an investor, said he’s worried the hospital can’t stay open without a buyer.

“I think there’s a lot of value there, but it has to be bought to survive,” Haas said.

When asked if St. Joseph would be forced to declare bankruptcy or close its doors if another hospital operator cannot be found, Robinson said he did not think it would come to that.

“We have no plans to do that.”

lynn.cook@chron.com

purva.patel@chron.com

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