Kindred builds California LTAC market share with Vista acquisition

Kindred Healthcare has moved to bolster its market presence in California and Texas, signing definitive agreements to purchase five long-term care acute-care (LTAC) hospitals in southern California and three Texas-based nursing and rehabilitation centers in two separate all-cash deals with a total purchase price of $218 million, reports The Courier Journal.

Earlier this year, the U.S. Senate launched an ongoing investigation into safety and quality issues at the nation's for-profit LTAC hospitals, and just this month, a study in the Journal of the American Medical Association revealed that "surprisingly little clinical evidence" supports the LTAC care model, reports Bloomberg News. In addition, LTAC hospitals, like their general acute-care brethren, face significant pricing pressures. The Medicaid pricing issue is so severe that JPMorgan analysts have issued a neutral rating on Louisville, Ky.-based Kindred's stock, believing the company's ability to meet Wall Street earnings estimates could be impacted, reports Benzinga.

Despite these stresses, Kindred is scouting consolidation prospects. "We continue to seek opportunities to expand our continuum of post-acute care services in our key cluster markets to support the growing interest among public and private payers for integrated care," said Kindred President and CEO Paul Diaz in a statement.

In California, the company plans to acquire five LTAC hospitals (all leased) from Rancho Cucamonga, Calif.-based Vista HealthCare, which bills itself as the second-largest LTAC hospital system in California. Vista operates four freestanding hospitals and one hospital-in-hospital. The 250 total beds generate annualized revenues of $150 million and earnings before interest, income taxes, depreciation and amortization of $27 million.

In Texas, Kindred will acquire three nursing and rehabilitation centers in the Dallas-Fort Worth area from an unidentified company. With a total of 405 beds, the three centers generate annualized revenues of $24 million and earnings before interest, income taxes, depreciation and amortization of $3 million. Kindred plans to develop two of the three new centers into short-term transitional care centers, as well as adding a transitional care unit to the third nursing center. The company already operates six LTAC hospitals and is developing a co-located hospital-based subacute unit in Dallas-Fort Worth.

Kindred anticipates incurring first-year transition costs of $6 million to $8 million for the two acquisitions. Excluding these costs, the company expects the acquisitions to be slightly accretive to earnings in 2010 and to add earnings of $0.17 to $0.22 per diluted share post-integration.

As of Dec. 31, 2009, Kindred operated 10 hospitals (823 licensed beds) in California and 11 hospitals (822 beds) in Texas. The company had 21 nursing facilities (2,437 beds) in California but none in Texas. Nationally, Kindred had 83 LTAC hospitals (6,580 beds) and 222 nursing facilities (27,523 beds) at year-end 2009.

To learn more:
- read this Bloomberg News article
- check out this Courier-Journal article
- check out this Benzinga report
- read this Dow Jones Newswire report in the Wall Street Journal
- read Kindred's press release
- review Kindred's 10K filing here
- take a look at Vista's website profile