NME to Buy Rival Chain American Medical : Acquisitions: The $3.3-billion deal aims to spur the firm’s competitiveness stateside and abroad. Analysts’ reactions are mixed.

National Medical Enterprises, continuing its rapid recovery from a rash of legal and ethical troubles, said Tuesday that it will acquire rival hospital chain American Medical Holdings in a $3.3-billion deal that would give it considerable clout in two important markets: Southern California and southern Florida.

The new company would have $5.3 billion in combined revenue, 84 hospitals in 13 states and overseas, and be better positioned to compete for vital contracts with health maintenance organizations and other insurers, company officials and analysts said.

But analysts’ reactions to the deal were mixed.

Jeff Villwock, of Johnson Rice & Co. in New Orleans, praised the deal as “a tremendous operating merger” with “a lot of synergies” among the two companies’ facilities in several states.

But Dean Witter Reynolds’ Todd Richter said National Medical’s move was “one of desperation. Putting NME and American Medical together doesn’t get you the critical mass you need to survive in the future.”

Whatever the case, it’s not quite the deal that National Medical Chairman Jeffrey Barbakow had set his sights on.

Barbakow had tried to negotiate a complicated three-way merger with Dallas-based American Medical and HealthTrust Inc. of Nashville. That deal was blocked by Columbia/HCA, the Louisville, Ky., health care titan, when it snapped up HealthTrust in a $5.4-billion deal announced a week ago.

Though National Medical and American Medical had been talking about a possible combination for months, the discussions took on increasing urgency after Columbia’s deal was announced, according to a source close to the negotiations.

But Barbakow called the America Medical deal “the very best transaction” available to the company and said it plans other acquisitions in the near future.

“You’ll see a lot of deals quickly,” he said. “We’re looking at some big ones, but some small ones will be significant, too.”

Barbakow said no decision has been made on where to locate the corporate offices, if the deal is completed. National Medical has been looking for a new headquarters for several months. Its Santa Monica offices were badly damaged in the Northridge earthquake in January, and it doesn’t need as much office space after recent layoffs of corporate staffers.

Barbakow said the company will be renamed--”but not NME”-- after the merger, though no name has yet been chosen. Observers said a new name would be a good strategy because the National Medical name has become synonymous with health care fraud.

National Medical has been struggling to overcome its negative image after a swamp of legal and other problems. In July, the company paid $380 million to settle federal criminal fraud charges and pleaded guilty to six counts of paying kickbacks for the referral of Medicare patients. It also paid more than $200 million to settle civil suits brought by insurers and former patients over allegations of fraud, overbilling and patient abuse, primarily involving the company’s psychiatric hospitals.

National Medical has divested most of those facilities.

The merger would create especially strong operations in Southern California, which will produce half of the combined entity’s revenue, and in southern Florida, Louisiana and Texas.

National Medical operates 15 hospitals in Southern California, including its Los Angeles flagships, Century City Hospital and USC University Hospital.

American Medical operates five hospitals in Southern California: Encino-Tarzana Regional Medical Center, Garden Grove Hospital and Medical Center, Irvine Medical Center, the Medical Center of North Hollywood and South Bay Hospital in Redondo Beach.

Barbakow said the merger would allow the company to negotiate better deals with health insurers because of the size and breadth of its facilities in Southern California.

“We have a hospital in Century City and now we have ones in Tarzana and Encino, plus Orange County,” he said. “We’ll have the critical mass to go to the employers in Los Angeles and say, ‘We have the following assets and services across Southern California.’ ”

But one health care executive says National Medical may still not have enough facilities in the huge Los Angeles market to gain the marketplace clout it seeks.

“I haven’t seen any HMOs that are willing to sign a contract with one medical system,” said Terry Hartshorne, chief executive of UniHealth America, a Burbank-based health care company that owns nine hospitals in Southern California. “This marketplace is so complex and competitive now that 15 hospitals isn’t a big enough critical mass to create much of anything.”

The $3.3-billion valuation for American Medical includes the assumption of about $1.3 billion in debt by National Medical. The Santa Monica-based firm will have to borrow heavily to finance part of the deal, but Barbakow said he is confident that the company will generate enough cash to quickly reduce the debt.

National Medical shares fell by 62.5 cents to $15.625 Tuesday in heavy New York Stock Exchange trading. American Medical shares rose by $1.625 to $24.

Until 1990, American Medical was based in Beverly Hills. Its chairman and chief executive, Robert W. O’Leary, is former head of the St. Joseph Health System, a not-for-profit, nine-hospital chain based in Orange.

O’Leary and John T. Casey, American Medical’s president and chief operating officer, will become co-vice chairmen on National Medical’s board.

National Medical Merger

The combination of National Medical Enterprises and American Medical International would double NME’s revenue and more than double its number of hospitals to 84, but the new firm would still be far behind the giant Columbia/HCA Healthcare Corp., which would have 311 hospitals under a pending merger. Here’s what the combined company would look like:

* Revenue: $5.28 billion

* General hospitals: 84

* Geographic concentration: California, Texas, Florida

* Employees: 63,200

* Headquarters: Santa Monica

* Chief executive: Jeffrey Barbakow