Deal repositions WLR's Pinnacle Pointe Hospital.

Mergers and acquisitions on the national psychiatric hospital scene are viewed as a harbinger of consolidation in Arkansas. The emergence of managed care and falling profits among the state's players portends a market shakeout.

"It will be real interesting to see who falls out and who doesn't," says Joey Fischer, CEO of BHC Pinnacle Pointe Hospital.

The former CPC Pinnacle Pointe Hospital in west Little Rock was among a group of 25 psychiatric and substance abuse centers purchased from Community Psychiatric Centers for more than $130 million in cash and stock by Behavioral Healthcare Corp. of Nashville, Tenn.

The acquisition transformed BHC into the second-largest psychiatric hospital network in the nation. The value of Pinnacle Pointe's property in west Little Rock accounted for $4.3 million.

Pinnacle Pointe was the last of seven private psychiatric hospitals to enter Arkansas in April 1991. Since then, the 102-bed facility has accumulated a 13 percent share of the market.

The overall size of the revenue pie for psychiatric hospitals is $129 million when the state-owned Psychiatric-Adolescent Center is thrown into the mix.

Community Psychiatric Centers raised eyebrows when it chose to enter an Arkansas market that some considered saturated. But now the affiliation with BHC has repositioned Pinnacle Pointe to weather tightened profit margins and take advantage of market opportunities.

Mental health care is one of the fastest-growing segments of the financial pie at the state Department of Human Services. Pending changes in state-managed care incentives could have a good news-bad news impact on Pinnacle Pointe and its peers.

Mental health care providers stand to reap an influx of Medicaid patients seeking services in areas previously closed to private companies. The state intends to hold the line on enforcing any-willing-provider provisions that will open the market.

"If all those things happen, it will be the most significant thing to happen to our business in a long time," Fischer says. "With the changes in Medicaid, don't be surprised to see some consolidation. With the squeeze on utilization, something's going to have to give."

Monthly occupancy at Pinnacle Pointe during the past year has ranged from a low of 63 percent to a high of 82 percent.

"Other folks in town would drool for this," Fischer says. "At this particular hospital, utilization has gone way up. The average daily census [of patients] has grown by 20-25 percent during the last 12 months."

The improved numbers during 1996 are a reflection of tightened relationships with managed care companies. Fischer believes this has positioned the company to expand should the opportunities pan out with coming changes in Medicaid.

Arkansas Psychiatric Hospitals

                                        Net Income         Revenue
                                            (loss)

Greenleaf Center                        ($104,511)   $14.1 million
Jonesboro/60 beds

Rivendell of Arkansas                    (134,270)    25.3 million
Benton/77 beds

The Bridgeway                            (209,921)    15.9 million
North Little Rock/70 beds

Harbor View Mercy                        (373,830)     8.9 million
Fort Smith/80 beds

Charter BHS of NW Arkansas               (701,849)    15.1 million
Fayetteville/65 beds

Charter BHS of Little Rock           (1.5 million)    14.7 million
Maumelle/60 beds

Pinnacle Pointe                      (1.5 million)    16.7 million
Little Rock/102 beds

Arkansas State/Psych.-Adolescent    ($3.6 million)   $18.2 million
Little Rock/205 beds

Source: Arkansas Business Ranking Nov. 18, 1996. Figures are for
fiscal years ending in 1995 except for Charter BHS of NW Ark.,

"That's a decision we'll have to make as a management team, to see if the company wants to spend the cash for new space," Fischer says.