Affiliated Medical Buys $100-Million Hospital Company

Affiliated Medical Enterprises of Orange has completed a $100-million acquisition of American Health Group International Inc., a health-care firm based in Kirkland, Wash., which includes four acute-care hospitals and a home health company.

The acquisition will increase 2-year-old Affiliated’s holdings to five hospitals, all but one concentrated in the Southern California market, according to Dan S. Young, president of Affiliated, a small company with big plans.

“We don’t expect to be as large as HCA (Hospital Corp. of America) because we do not want to lose the regional spirit of the company,” Young said. “We do intend to expand to a 15- to 20-hospital company.”

Before the American Health Group deal closed Thursday, Affiliated owned only one hospital: Ojai Valley Community Hospital in Ojai, which has 116 beds and offers services including a chemical-dependency unit, coronary care and a 24-hour basic emergency department.

Young’s health management firm is a private company owned by senior management and Cheng Liang Goh, an Asian investor. Goh owns hotels, a department store, a development firm and a paint-manufacturing company in Singapore, as well as Sanwa Foods, a noodle manufacturer in the City of Industry, Young said.

The $100-million deal included refinancing the Ojai hospital and getting $68 million in senior bank debt from a syndicate of banks and an insurance company led by First National Bank of Boston.

Young said the acquisition will bring Affiliated’s assets up to $110 million. The company expects to reach $145 million in revenues this fiscal year and is hoping to retire most of its debt within the next five years.

Health-care analyst Larry Selwitz of Bateman Eichler, Hill Richards in Los Angeles said it is common for facilities on the auction block today to be the least profitable hospitals in a given community. Some of these institutions have been weeded out by large chains.

“The scenario is that the second- and third-choice hospitals in a community are the ones being unloaded,” Selwitz said. “Those are the ones that are going to have the toughest time.”

Young acknowledges this troubling trend, but he said that his most recent acquisition is an entire hospital chain and not merely another company’s dregs.

“When you buy a group of hospitals from a major corporation, chances are they’re unloading their problem hospitals,” Young agreed. “What we’re buying is the entire company and all these hospitals . . . have good historical performance, even during the toughest times of the industry.”

Affiliated’s new facilities are: Pacifica Hospital of the Valley, Sun Valley, Calif., 264 beds; Palmdale Hospital Medical Center, Palmdale, Calif., 123 beds; Pacifica Community Hospital, Huntington Beach, Calif., 109 beds; Roosevelt Hospital, Portales, N.M., 99 beds, and Evergreen Home Health Care Inc., Burbank, Calif.