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MedCath Moves Toward Dissolution

 |  By Margaret@example.com  
   May 11, 2011

MedCath Corp. announced Monday that it will file a proxy statement with the SEC to request stockholder approval to authorize the MedCath board to dissolve the company, sell its remaining assets without further stockholder approval, and distribute available net proceeds to stockholders. MedCath hopes to file the proxy during its fiscal third quarter ending June 30, 2011.

Charlotte, NC-based MedCath is a healthcare provider focused on high acuity services, especially the diagnosis and treatment of cardiovascular disease. It began by providing acute care hospitals with mobile cardiac catheterization labs and transitioned into hospital ownership in partnership with physicians.

In its heyday, MedCath had ownership interests in 13 hospitals in nine states, 27 cardiac diagnostic and therapeutic facilities in 12 states, and a rental fleet of mobile and modular cardiac cath labs.

The dissolution does not come as a huge surprise. In March 2010, MedCath retained Navigant Capital Advisors and announced the formation of a strategic options committee to consider the sale of the entire company or the sale of its individual hospitals and other assets.

Although there was no formal announcement of which option MedCath would pursue, the individual sale of many of its hospitals and the sale last week of MedPartners, one of its two operating segments, signaled that the company was liquidating.

In recent years, MedCath's financials have taken a beating. The company reported a loss from operations of $30.5 million for the year ended Sept. 30, 2010 and a net loss of $21.1 million for the same time period. That performance followed a net loss of $54.6 million from operations for the year ended Sept. 30, 2009 and a net loss of $58.6 million for the same time period.

Whit Mayo, a senior research analyst with Robert W. Baird and Co. in Nashville, has followed MedCath through its up and downs since 2004. He says the company "never hit its stride on a growth model" and that it was "blind-sided by the specialty hospital moratorium" imposed by Congress in 2003. During the 18-month moratorium physician-investors in new specialty hospitals could not refer Medicare patients to those hospitals.

The shift from inpatient to outpatient cardio procedures, especially implanting stents, also hurt MedCath. "They had a lot of beds and then insurers quit paying for patients to be hospitalized for stent work," explains Mayo. In 2009, MedCath's president and CEO, O. Edwin French, noted in a stockholder's letter that 40% of MedCath's heart catheterization business was now handled on an outpatient basis and that there had been a "decline in the number of open-heart surgeries, partly because of the effective use of drugs and drug-eluting stents."

Efforts to diversify its stand-alone specialty hospitals included ER expansions, diagnostic imaging services and the addition of orthopedic surgeries. Despite these efforts, in the 2009 stockholder's letter French said non-cardiovascular services accounted for only 20% of MedCath's business.

Mayo says MedCath simply didn't have the wide support among physicians, especially in primary care, it needed for its diversification efforts.

The trend in recent years for large hospital and health systems to purchase physicians groups also caused problems for MedCath. "The docs they relied on the most aligned themselves with competing systems. MedCath's only option in those markets was to sell its hospital."

Mayo points to the sale of hospitals in Austin and Phoenix to HCA and Vanguard Health Systems, respectively, as part of that trend. HCA purchased Austin Heart, a major cardiology practice affiliated with the MedCath facility, in December 2009 and was part of the partnership that then acquired the Heart Hospital of Austin in November 2010. In Phoenix, Vanguard Health Systems acquired the cardiology group Arizona Heart Institute in May 2010 and then purchased the Arizona Heart Hospital in October 2010.

In the end, "MedCath realized that the value of its individual assets was worth more than the company as a whole," explains Mayo. For the most part MedCath properties have been acquired by local buyers with strong positions in the local market:

  • MedCath Partners was sold to DLP Healthcare LLC, a joint venture between Nashville-based LifePoint Hospitals and Duke University Health System in Durham, NC. The $25 million deal included six hospital-based cardiac catheterization labs and three mobile cath labs in North Carolina. The acquired assets will be operated by DLP Cardiac Partners. (May 2011)
  • Coastal Carolina Heart was sold for $5 million to New Hanover Regional Medical Center in Wilmington, NC. (May 2011)
  • Arkansas Heart Hospital in Little Rock is expected be sold for $73 million to AR-MED, LLC, which is majority owned by Dr. Bruce Murphy, a physician affiliated with Little Rock Cardiology Clinic, P.A. and a current investor in the Arkansas Heart Hospital. (May 2011)
  •  Heart Hospital of New Mexico in Albuquerque is expected to be sold for $119 million to Lovelace Health System of Albuquerque. Lovelace is part of Nashville-based Ardent Health Services. (May 2011)
  • TexSan Heart Hospital in San Antonio was sold for $78.5 million to Methodist Healthcare System of San Antonio.  (December 2010)
  • MedCath's 27% minority ownership of Southwest Arizona Heart and Vascular, LLC was sold for $7 million to the joint venture's physician partners. (Nov. 2010)
  • The Heart Hospital of Austin was sold for $83.8 million to HCA's St. David's Healthcare Partnership, L.P.  (Nov. 2010)
  • Avera Heart Hospital in Sioux Falls, SD was acquired by Avera McKennan, a member of Avera Health, a regional healthcare entity with more than 235 facilities in South Dakota, North Dakota, Minnesota, Iowa and Nebraska. Avera McKennan paid $20 million plus an estimated $16 million in cash for the hospital. (Oct. 2010)
  • Arizona Heart Hospital transaction was acquired for an estimated $32 million by Vanguard Health Systems. (Oct. 2010)

Four hospitals remain in the MedCath fold: Bakersfield Heart Hospital in California, Harlingen Medical Center in Texas, Hualapai Mountain Medical Center in Kingman, AZ and Louisiana Medical Center and Heart Hospital in Lacombe. No sales details for these facilities could be confirmed with MedCath.

Margaret Dick Tocknell is a reporter/editor with HealthLeaders Media.
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