CHS CEO talks spinoff: 5 thoughts

Franklin, Tenn.-based Community Health Systems shared plans this week to spin off 38 hospitals, primarily in cities or counties with populations of 50,000 or less, and Quorum Health Resources into a separate company, a move intended to strengthen the CHS' focus on larger markets.

Wayne Smith, president and CEO of CHS, recently spoke with The Tennessean about the company's decision to spin assets into a new public company, called Quorum Health Corp.

Here are five thoughts that Mr. Smith shared during the interview.  

1. Mr. Smith said the planned spinoff reflects how several forces are changing how executives think about running hospitals — both as individual facilities and networks.

2. In pondering how best to operate in a hospital market that is increasingly defined by geography and population, Mr. Smith said the planned spinoff "just made a lot of sense to us."

"There is clearly a space for non-urban hospitals in the market and there's a lot of opportunity," Mr. Smith told The Tennessean.

3. When asked what Quorum Health Corp.'s niche will be, Mr. Smith said in the interview that Quorum Health Resources has lost some contracts in the last year as publicly owned hospitals have been sold, primarily, to nonprofit operators. CHS had the opportunity to evaluate the hospitals as potential acquisitions but opted against it because the hospitals didn't fit with the company's goals of building networks, according to the report. But Quorum Health Corp., the report notes, will be more likely "to do the homework on the value of a particular acquisition."

"We think that's a natural feeder for Quorum," Mr. Smith told The Tennessean. CHS "is going to provide a lot of resources like IT, credit collection [and] payroll. They will primarily be focused on acquisitions. I think that gives them a distinct competitive advantage in the marketplace."

4. As far as the timing of the spinoff, CHS has been working on the transaction "undercover" for a significant time period, according to the report. However, the recent U.S. Supreme Court King v. Burwell  ruling to preserve access to premium tax credit subsides for eligible consumers in all states, not just those that operate state-run insurance exchanges, "made this industry more attractive going forward," Mr. Smith told The Tennessean.

5. Mr. Smith also discussed CHS' future plans for the rest of the company's portfolio after the split. He said CHS has moved toward buying larger hospitals in the past few years to build large hospital networks, so the spinoff plans focused on building networks of hospitals in large, more urban areas. CHS will still own, operate or lease about 160 hospitals once Quorum Health Corp. separates.

 

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