Leonard Green acquires Prospect Medical Holdings

Tools

The private equity firm: Leonard Green & Partners

The hospital operator: Prospect Medical Holdings

The price: $363 million

The scoop: This $363 million deal to acquire five small Los Angeles-area hospitals was, like Cerberus, also a first-time deal for private equity firm Leonard Green & Partners, which has $9 billion under management.

On paper, Healthcare Finance Group Senior Vice President Shane Passarelli said the deal makes sense: Community hospitals in urban or suburban areas are ripe takeover and consolidation targets because they have steady cash flow and are likely to benefit from the tens of millions of Americans expected to gain insurance coverage as a result of healthcare reform.

However, he noted that Prospect's hospitals are heavily reliant on a disproportionate share of payments from Medi-Cal, California's Medicaid program. In other words, they get paid more because they have more poor patients than a typical hospital. It's a payment structure likely to be phased out as part of reform.

"It looks good now, but they're going to be challenged in the future," Passarelli said.

Related Articles:
Private equity firm to acquire LA-based Prospect Medical

Private equity prepped for a health insurer buying spree?  
Investors expect healthcare M&A uptick through 2Q 2011