ProMedica Health System to become $7B company with planned HCR ManorCare acquisition

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ProMedica Health System announced plans to purchase HCR ManorCare. (Rawpixel)

Ohio-based ProMedica Health System has announced plans to acquire HCR ManorCare, the second largest post-acute and long-term care provider in the U.S. 

The acquisition would take place through a joint venture with Welltower, a healthcare real estate and investment trust, ProMedica announced Friday. If finalized, the deal would make ProMedica the 15th-largest health system in the U.S. with $7 billion in annual revenue. 

The deal is complex—ProMedica will assume ownership of HCR as part of an 80/20 venture with Welltower, the trust announced. Welltower will pay nearly $2 billion to purchase HCR's parent company, Maryland-based Quality Care Properties.

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Once the deal is finalized, ProMedica and Welltower will enter a 15-year leasing agreement, according to Welltower. 

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"We want to take down the wall between traditional hospital and post-acute services in an effort to enhance the health and well-being of our aging population," Randy Oostra, CEO of ProMedica, said in the announcement. 

"The lines are blurring between where healthcare begins and stops," Oostra added. "This acquisition provides us the platform to think differently about health and aging." 

HCR ManorCare, which is also based in Ohio, will bring its more than 40,000 employees and 450 facilities into the ProMedica system. If the deal is finalized, ProMedica would include more than 70,000 employees in 30 states. 

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HCR had filed for bankruptcy in March, Reuters reported, as it struggled to keep up with rent payments amid declining Medicare reimbursements. Quality Care Properties acquired HCR ManorCare earlier this month. 

The merger is part of the industry's ongoing appetite for vertical integration, according to analysis from Fitch Ratings. Many vertical deals are similar to this one, where a hospital buys a provider in a lower cost setting such as an ambulatory care center. A number of high-profile vertical mergers have been related to the pharmacy benefits sector, with the planned deals between CVS and Aetna and Cigna and Express Scripts dominating headlines.

"Whether or not the ProMedica/HCR combination is ultimately successful may hinge on how the company implements its strategy in markets where the hospital and skilled nursing footprints do not overlap, how they manage growing from a regional to national organization and whether the committed capex is sufficient to improve operating performance," Fitch said. "Regardless of its success, the transaction crystalizes the extent to which skilled nursing real estate values declined."

The structure of the deal between ProMedica and HCR also echoes acquisitions made by Humana alongside private equity firms TPG Capital and Welsh, Carson, Anderson & Stowe in the post-acute care space. The trio kicked off plans to purchase Kindred Healthcare, the largest home-health and hospice operator the country, in December. The purchase was approved by Kindred's shareholders at the beginning of April. 

Humana and the two private equity firms also revealed plans to purchase Curo Health Services, another leading hospice provider, earlier this week.

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