Piedmont Healthcare now covers 85 percent of Georgians, expansion to continue
By David Pendered
Piedmont Healthcare’s service area now covers about 85 percent of Georgians, following its acquisition Aug. 1 of four hospitals through a sale to be funded with $1 billion of debt, according to a report from Moody’s Investors Service.
These acquisitions combine with Piedmont’s existing network to set the stage for continued expansion, analysts wrote in a rating action released Aug. 16:
- “This statewide presence will enable the Piedmont Clinic, PHC’s clinically integrated physician network and market differentiator, to continue to expand into new markets and attract independent physician groups.”
One such expansion is in Augusta, where Piedmont Healthcare has signed a letter of intent to acquire University Health, according to the rating action.
The four facilities new to Piedmont are in regions of growing population, according to the Census report released Aug. 12: Snellville, Cartersville, and Macon.
Together, the facilities add 882 beds to Piedmont’s network. The figure includes an in-patient behavioral health facility in Macon, according to a statement issued by the entity that sold the four hospitals, HCA Healthcare, of Nashville, Tn. The statement does not indicate how many of the beds are set up and staffed, capable of serving patients.
HCA announced on May 3 the sale to Piedmont Healthcare of the following four facilities for a total of about $950 million:
- Snellville: Eastside Medical Center, 310 beds;
- Cartersville: Cartersville Medical Center, 119 beds;
- Macon: Two facilities – Coliseum Health System and its two acute care hospitals, Coliseum Medical Centers, 310 beds; and Coliseum Northside, 103 beds; plus Coliseum Center for Behavioral Health, with 40 beds for inpatient treatment.
The credit rating released Aug. 16 by Moody’s indicates analysts are fairly optimistic Piedmont will be able to service its debt – which will total about $2.4 billion once this latest round is sold. Piedmont reported $3.9 billion in operating revenues in fiscal 2020, according to the rating action.
The analysts reported that Piedmont’s past performance in absorbing acquisitions informed their decision to issue a credit rating of upper-medium grade on the planned bond issue. Analysts wrote:
- “The A1 rating is further supported by management’s demonstrated ability to effectively integrate several acquisitions in recent years.”
Another document from Moody’s, a credit opinion issued Aug. 18, expanded on the theme of Piedmont’s proven ability to absorb its purchases and continue to post operating revenues:
- “PHC has demonstrated the ability to effectively and quickly integrate acquired assets as demonstrated, in particular, by the acquisition of Athens Regional in 2016 and Columbus Regional in 2018.”
However, analysts also have provided cautionary warnings. In 2018, Moody’s provided a negative outlook on the credit rating and noted that potential headwinds include the inability to absorb acquisitions while sustaining strong revenues; pressure from payers that could reduce the system’s market share, and – in a nod to Piedmont’s expansion plans – “Additional acquisitions that will impede deleveraging or dilute operating performance.”
The later is offset by investors’ appetites for growth. The No. 2 factor that could lead to an upgrade of the system’s credit rating was: Expansion of the system further outside the Atlanta service area without diluting operating margins, according to the 2018 credit opinion.
Potential revenue growth is a tonic for many credit challenges, according to the Aug. 16 rating action:
- “These recent acquisitions will increase PHC’s total operating revenue by about 18% and expand the system’s presence in Macon, Georgia as well as fortify its presence in and around Atlanta. PHC will now cover about 85% of the population of the state of Georgia. PHC’s focus on integration will likely enable it to absorb the 70% increase in debt over the next few years.”