HealthSouth to Buy Surgical Care Affiliates for $1.2 Billion : Health care: Analysts say the new outpatient surgery firm will benefit from automatic referrals.

From Reuters

HealthSouth Rehabilitation Corp. said Tuesday that it has agreed to buy Surgical Care Affiliates Inc. in a $1.2-billion deal that would make it the nation's largest operator of outpatient surgery centers.

The takeover would combine Surgical Care's free-standing outpatient surgery centers with HealthSouth's rehabilitation services, giving the new company nearly 600 locations in 42 states.

Industry analysts said the combination makes sense in the rapidly consolidating health care industry.

"There's a lot of opportunities for cross-referrals," said Lucy Olwell of Merrill Lynch.

"HealthSouth found that a third of the patients they treat in rehabilitation have had surgery. So by owning the outpatient facilities, you get an automatic referral for the rehab."

Outpatient surgery centers are also expected to handle more than half of all surgical procedures in coming years, industry officials and analysts said.

Surgical Care's facilities overlap with HealthSouth's in about 70% of the markets the two companies serve, giving them the opportunity for cross-referrals.

The facilities would include 122 surgery centers, 400 outpatient rehabilitation facilities, 77 rehabilitation hospitals and five medical centers.

HealthSouth had 1994 sales of $1.1 billion; Surgical Care, based in Nashville, Tenn., had sales of $237 million.

The merger is also expected to net Birmingham, Ala.-based HealthSouth new contracts with employers, health maintenance organizations and other groups.

"Adding these facilities to our network and eliminating duplicative costs will enable the combined network of facilities to offer managed care, insurance companies and other payors a more cost-effective and efficient integrated system of health care delivery," HealthSouth Chairman and CEO Richard Scrushy said.

"This clearly sets them even further ahead of the pack," said Brad Wilson of GS2 Securities in Milwaukee. "They've got about 600 contracts and hope to acquire between 300 and 400 additional contracts as a result of this."

Under the definitive agreement, each share of Surgical Care common stock would be exchanged for 1.22 shares of HealthSouth common stock.

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