HCA to Acquire Health Midwest

In a setback for Tenet Healthcare Corp., rival hospital giant HCA Inc. said Wednesday that it has agreed to buy Health Midwest, a 14-hospital chain based in Kansas City, Mo., for $1.13 billion.

Santa Barbara-based Tenet and HCA were the two finalists in a rare opportunity to acquire, in one swoop, a dominant hospital system in a growing urban market. The 20-member board of Health Midwest, a nonprofit company that has been struggling financially, said it voted unanimously to go with HCA.

In addition to the cash price, HCA said it would spend $450 million for capital improvements over the next five years. The deal, which is contingent on reaching a final agreement and regulatory approvals, would be the largest acquisition for HCA since the Nashville-based company merged with Columbia in 1994. HCA is the nation’s biggest hospital chain with 181.

Tenet, the No. 2 chain with 114 hospitals, including 40 in California, downplayed the significance of its failed bid for Health Midwest. Although acknowledging that Health Midwest was a “terrific opportunity,” spokesman Harry Anderson said it was not essential to Tenet or factored into the company’s previously stated projections of at least 25% earnings growth in its current fiscal year.

“HCA’s bid was much higher,” Anderson said, noting that he could not disclose Tenet’s offer because of a confidentiality agreement. “We’re not willing to make an acquisition just for the sake of growth.”

This summer, Tenet lost a bid to take control of Baptist Health System, a five-hospital system based in San Antonio. Tenet is in talks to buy a hospital in Philadelphia, one in Louisiana and the USC/Norris Cancer Hospital in Los Angeles.

Tenet and HCA operate largely in urban markets and share a common strategy of trying to buy hospitals in areas where they can be a dominant player, which gives them leverage in negotiating contracts with health insurance companies.

Health Midwest spokesman Chris Whitley said price was not the only factor in the decision.

“As important to the board was to find a party that would offer a strong commitment to maintain and honor the various religious, cultural and charitable traditions,” he said.

Labor and community activists in Kansas City have opposed a takeover of a nonprofit health system by an investor-owned corporation, raising concerns that such a conversion would lead to cuts, hurting employees and consumers.

HCA shares rose 28 cents Wednesday to $51.18. Tenet closed at $50.56, up 16 cents. Both are traded on the New York Stock Exchange.