By Soyoung Kim and Jessica Toonkel

NEW YORK, Nov 13 (Reuters) - Buyout firms Apollo Global Management LLC APO.N and Thomas H. Lee Partners LP are interested in buying hospital operator Capella Healthcare from its private equity owner, according to several people familiar with the matter.

Chicago-based buyout firm GTCR LLC hired Bank of America Merrill Lynch BAC.N to explore a sale of the Franklin, Tennessee-based hospital operator, in a deal that is expected to fetch less than $1 billion, Reuters reported in September.

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Apollo and THL submitted first-round offers for Capella, the people said this week, asking not to be named because the matter is not public. It could not be determined if other firms besides Apollo and THL are involved in the sale process.

Several other private equity firms as well as hospital operators considered a deal for Capella but decided against it, the people added.

Representatives for Capella, Apollo, Thomas H. Lee and Bank of America declined to comment. A GTCR spokeswoman did not respond to a request for comment.

GTCR first invested in Capella in 2005, according to Capella's website. The company operates 14 hospitals in rural areas of the United States including Arkansas and Tennessee.

Capella has more than $100 million in earnings before interest, tax, depreciation and amortization and GTCR is hoping to get a little less than $1 billion for the sale, Reuters previously reported.

There is, however, a substantial price gap with the private equity bidders and it remains unclear if the buyout discussions will result in a deal, the people cautioned.

Hospital operators are increasingly looking to grow through acquisitions as they seek to gain leverage in negotiations with health insurers and reinforce their presence in local markets, and as they brace for diminishing payments from government programs such as Medicare and Medicaid.

In June, third-largest U.S. hospital chain, Tenet Healthcare Corp THC.N , said it was buying Vanguard Health Systems Inc for $1.73 billion. ID:nL3N0F02BV

In July, Community Health Systems Inc CYH.N , the second-largest for-profit U.S. hospital operator, announced plans to acquire Health Management Associates HMA.N in a deal valued at $3.6 billion. That agreement was just approved by HMA's new board of directors Wednesday. ID:nL2N0IY0QQ

(Additional reporting by Greg Roumeliotis in New York; Editing by Lisa Shumaker)

((Jessica.toonkel@thomsonreuters.com)(646-223-7882)(Twitter: @jtoonkel)(Reuters Messaging: jessica.toonkel.thomsonreuters.com@reuters.net))

Keywords: CAPELLA SALE/