Children’s Memorial Hospital confirmed plans to sell a for-profit disease and health cost management subsidiary for $89 million in its search for ways to finance its proposed new hospital in the Streeterville neighborhood.
Children’s said it will sell Deerfield-based Focused Health Solutions Inc. to private equity firm Linden LLC, which is focused on investments in the health-care industry. Children’s does not consider the business “core” to its operation going forward.
“In our financial planning of the new hospital, we had anticipated these funds would be available for that purpose,” said Julie Pesch, hospital spokeswoman, referring to proceeds from Focused. “This is a great kickoff to our campaign, which will rely heavily on a wide variety of financial sources including philanthropic support.”
The amount raised through the sale is only a fraction of the estimated $800 million Children’s will need to finance the new hospital, but the deal with Linden shows that Children’s is looking at asset sales as part of its financing plan. The hospital would not say whether other assets could be sold.
Previously, Children’s officials said they plan to raise money for the new building through a mix of hospital profits, debt financing and philanthropy, perhaps the most critical aspect of its campaign in the coming years.
Plans call for Children’s to break ground in 2008 on a site near Northwestern University’s medical school in the North Michigan Avenue area. The new hospital is expected to open in 2011, with the ability eventually to treat 12,000 patients or more a year. The hospital treats more than 9,000 patients annually now.
The Children’s board voted unanimously in April to relocate to Streeterville and leave the Lincoln Park neighborhood where it began in 1882 in a cottage on the corner of Belden Avenue and Halsted Street.
In selling Focused Health, Children’s is unloading a business that is operating in a rapidly growing field. Neither Children’s nor Linden would disclose annual revenues of Focused Health.
Children’s said its Focused Health subsidiary evolved from its origins in 1985 as a pediatric home-care agency, known as CMHealthcare Resources.
The company “transitioned into a disease management company” in 2000, but is not a “core” asset of Children’s today, Pesch said.
Hired by insurance providers, Focused Health, its officials said, provides “personalized programs” to help employees set goals and adopt healthy behaviors. Then, the company can help workers who are contributing the most to their employer’s health-care costs.
Linden will retain Focused Health’s workers and management team.
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“Linden’s investment in Focused Health demonstrates our firm’s targeted strategy of investing in non-core divisions of health-care companies where our operating expertise enables us to partner with management teams to enhance value,” said Eric Larson, founder and managing director of Linden.
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