News

First reported at timesleader.com at 9:46 a.m. on Tuesday, Aug. 19.

Negotiations under way for Community Health Systems to buy W-B General, affiliates

August 21, 2008

WVHCS signs letter to sell

By Ron Bartizek rbartizek@timesleader.com
Business & Consumer / City Editor

WILKES-BARRE – After weeks declining to address rumors of a sale, the Wyoming Valley Health Care System issued a press release Tuesday saying it had signed a letter of intent to sell the system to a subsidiary of Community Health Systems Inc., headquartered in Franklin, Tenn.

The firm is well respected in the industry and is run by experienced managers who have a record of investing in newly acquired hospitals.

“These guys are good operators,” said Robert Hawkins, a health-care industry analyst at stock broker Stifel, Nicolaus & Co. about for-profit Community Health Systems. “They know how to buy them right and they know how to operate them to be more profitable.”

That doesn’t necessarily mean wholesale staff reductions are in the offing. Hospitals are notoriously inefficient, Hawkins said, and he expects CHS will seek more productive ways to operate both the business and medical sides of the system that includes Wilkes-Barre General Hospital and several other health-care affiliates, employing 3,200 people.

WVHCS board chairman Rusty Flack said in the press release that all employees would be offered continued employment in their current jobs and at current salaries. No terms were disclosed.

On the business side, Hawkins said CHS is likely to install systems and processes that will help it to charge and collect for services. The company also participates in a large supplies purchasing group, which combined with better management can cut costs substantially.

“Little things really add up fast in a hospital,” Hawkins said. “I think to succeed in today’s hospital environment you have to streamline your management and processes.”

In patient care, Hawkins said, “it’s more about making sure that you’re getting better outcomes with patients.”

In addition, the $10 billion company is able to extract higher payments from insurers, sometimes by agreeing to “pay for performance” arrangements that shorten hospital stays or exempt insurers from paying for treatment made necessary by medical errors.

“The guys who run it used to run Humana (a large health maintenance organization), and they know how to do medical management,” Hawkins said.

Hawkins said a report that CHS would commit $100 million to capital improvements and $50 million toward a community foundation were consistent with the company’s track record. Community Health is negotiating to purchase Deaconess Medical Center in Spokane, Wash., in a deal that includes a pledge to invest $100 million in equipment and technology over five years and to establish a new charitable foundation.

Wyoming Valley Health Care stopped a $100 million expansion project after turning down a $40 million contribution from Blue Cross of Northeastern Pennsylvania because the insurer sought influence over the hospital. The largest part of the project, which would have enlarged the emergency department, was never started.

Once an agreement is reached, a sale would need approval from the state Office of Attorney General. Office spokesman Kevin Harley said that since no consolidation is involved, there aren’t likely to be anti-trust concerns.

“It’ll be mostly a charitable trust review,” he said, with the office first determining the mission of the present non-profit organization. “Generally, we like to make sure that the charitable mission of the original hospital is maintained in some fashion,” and establishing a community foundation is a common approach. Typically, he said, the foundation accepts any excess funds from the sale after debt and other liabilities are paid for.

Once the office completes its review, it will hold a public hearing in Wilkes-Barre at which interested parties can voice their support or concerns about the change.

CHS spokeswoman Rosemary Plorin said the company does not comment on non-binding letters of intent and cautioned that this is just the first step in a long process.

“It will be some time before the deal is completed,” she said.

Hospital officials, including chief executive Dr. William Host and board chairman Flack, spent all day Tuesday meeting with employees and others who would be affected by the sale. Those meetings are scheduled to continue until a 2 p.m. press conference today. Both men said they would not comment to the media until they had met with all employees.

The sale announcement was e-mailed to all physicians and employees, said spokesman Kevin McDonald, and officials met with the system’s executive medical committee Tuesday morning.

Affiliated organizations also were being filled in Tuesday. Virginia Davis, second vice president of the Hospital Auxiliary, said an administrator had spoken with volunteers who were meeting to plan this year’s Starlight Ball fundraiser.

“It was very reassuring; we all felt encouraged by the news that we’ve gotten,” Davis said.

She was uncertain if the auxiliary’s role would change after a sale. “We’ll need to hear all the details and pattern ourselves off other auxiliaries at for-profit hospitals,” she said.

Davis anticipates the group’s focus may shift from donating furniture and equipment to supporting health services, “which I think would be very exciting for the auxiliary.”

Wyoming Valley Health Care faces mounting pressure from Danville-based Geisinger Health System, which purchased the former Mercy Hospital in 2005 and plans to open a major expansion at its Plains Township medical center next month.

To meet the competition, it’s important for CHS to establish good relationships with physicians, said Mark Stephens, chief executive of InterMountain Medical Group, a large practice with 52 physicians and 33 facilities.

“What it really means to us is the physicians in this community need a strong hospital to practice out of,” Stephens said. He said WVHCS has sometimes regarded organized physicians groups as competition.

He thinks the region’s population and high percentage of older residents can support two strong hospitals.

“General needs the appropriate capital in order to compete against Geisinger,” he said.

Dr. Irvin Jacobs, of Dallas Family Practice, who has held privileges at General Hospital for his entire 55-year career, hopes CHS cultivates primary-care physicians. “We need the specialists,” he said. “But we need someone who is in charge of the whole patient.”

“We just have to monitor and see what happens in time,” he said.

In a statement, Geisinger said it had worked cooperatively with Community Health Systems in the past, while pointing out that it remains not-for-profit, which spokeswoman Anne Green said allows it to invest excess revenue into programs and services that benefit patients.

Community Health Systems is a for-profit corporation, but Flack said it is anticipated the agreement will mandate “continued charity care to patients in need of emergency medical care.”

WHAT’S NEXT

Wyoming Valley Health Care System officials will hold a press conference to formally announce their intention to sell Wilkes-Barre General Hospital and other affiliates to Community Health Systems Inc. at 2 p.m. today at the Thomas P. Saxton Medical Pavilion, 468 Northampton St., Edwardsville.

ONLINE

•Reported first at 9:46 a.m. Tuesday

Ron Bartizek, Times Leader business editor, may be reached at 970-7157.

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