Wednesday, November 7, 2007

CHS/Triad Buyout Update


Community Health Systems released its financial results for the third quarter. On July 25th the company closed on its deal with Triad Hospitals, the parent of San Angelo Community Medical Center. At the time I noted the large amount of debt used to finance the deal and its prominent impact on interest expenses.

For the quarter, interest expense rose from $27.5 million to nearly $140 million, yet the merger costs fell mostly in the last two months, August and September. With Community Health's ongoing 125 hospitals, the additional interest expense amounts to $900,000 per hospital. Including the special interest charge and it registers well over $1 million and that's just for the third quarter! Annualized that becomes a serious burden.

The same happened with HCA, albeit on a larger scale, with its buyout. The Carlyle Group plans to buy ManorCare in a deal similar in size to Triad's. Just from changing hands, billions in new interest expenses are added to our already costly health care system. Apparently being "levered up" is one of the benefits of private health care, about which President Bush speaks so eloquently.