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Hospital Chain, Mission Viejo Psychiatric Firm Merge

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TIMES STAFF WRITER

Samissa Health Care Inc. has merged with Sterling Health Care Inc. of Bellevue, Wash., to form a chain of 19 psychiatric hospitals with estimated annual revenues of $60 million, the firms said Thursday.

The merger of the two private firms involved a stock swap that gives Samissa’s shareholders a 65% interest in the combined entity and Sterling’s shareholders 35%, said David L. Steffy, a director of the new concern.

Nonetheless, the combined firm will retain the Sterling name and be operated by Sterling’s current management. The company will consolidate its executive offices in Bellevue, a suburb of Seattle, and close Samissa’s Mission Viejo offices March 1, eliminating about 44 jobs.

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Mike Cancelosi, chief executive officer of Sterling, will head the merged company.

Barry Fireman, a pharmacologist who founded Samissa in 1986, has resigned and “is pursuing a venture outside of health care,” Steffy said. Fireman could not be reached for comment.

Steffy said the merger was designed to create a stronger company that will be attractive enough to raise money on Wall Street for future expansion. He said the company hopes to make an initial public stock offering in 12 to 18 months.

Sterling will now own or lease hospitals in 10 western states. It has no hospitals in Orange County and just one in Southern California: Alondra Crest Hospital in Bellflower.

In the last year, profits at Samissa Health Care have declined because of a trend toward reducing hospitalization in the treatment of adolescents, which had been a major part of the company’s business, Steffy said.

The Sterling chain has been more profitable, he said, partly because its seven hospitals are in less competitive markets and because Sterling has placed less emphasis on adolescent care.

Todd Richter, a health care analyst for Dean Witter Reynolds in New York, said Samissa is “a small, well-run hospital chain focused on high-quality care.” He said the company’s recent problems were related not to mismanagement but rather to new trends in psychiatric health care.

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Richter noted that the psychiatric care industry is “under a lot of pressure” from review companies--working for insurance firms--that try to control the rising cost of mental health treatment by reducing the number of hospitalizations.

He said that consolidation of psychiatric hospital chains has been occurring for the last two years and that he expects it to accelerate next year, resulting in more profitable organizations buying less profitable ones and the mergers of smaller companies.

He said the merger of Samissa and Sterling is a smart move but that any psychiatric hospital company would have difficulty going public soon, because investors are nervous about new stock offerings and about the future of the mental health industry.

“Only a really good company is going to get a good evaluation in this kind of a market,” he said.

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