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Empire shops its hospitals

Sat., Feb. 24, 2007

Empire Health Services has hired a Wall Street hospital broker to find outside investors or even buyers for Deaconess Medical Center and Valley Hospital and Medical Center.

Securing an infusion of cash and the right kind of philosophical and financial partner is a move to ensure that Spokane retains two viable, vital hospitals, said Mike Taylor, Empire’s board president and the owner of Taylor Engineering.

Negotiations announced Friday will affect Spokane’s oldest hospital and its affiliated services, including four FirstCare urgent care clinics. The nonprofit hospitals are in need of building and equipment upgrades to hit a set of aggressive safety and quality-care goals within five years, said Jeff Nelson, Empire’s chief executive officer.

Board members last fall hired Cain Brothers, a New York-based firm that specializes in hospital mergers, acquisitions and other financial arrangements. So far, the firm has solicited dozens of financial proposals on Empire’s behalf, though officials said efforts are in the early stages and final actions could range from doing nothing to outright sale.

“All options are on the table,” Nelson said.

In the hospital brokerage world, however, signing on with Cain Brothers is a significant step, a prominent industry competitor said Friday.

“If they’ve hired Cain Brothers, they’re for sale,” said Joshua Nemzoff, president and chief executive of Nemzoff and Co., a New Hope, Penn., consulting firm that also specializes in hospital sales and mergers.

Empire employees and doctors were informed about coming changes in a series of forums that now will be broadened to include the community at large, Nelson said.

At issue will be the future of the nonreligious hospital system founded in 1896. It employs 2,400 people and serves about 225,000 patients a year.

The union representing registered nurses and technical employees of Empire is wary after Cain Brothers representatives visited the hospitals and word spread about potential buyers.

“Any move toward a for-profit is automatic cause for concern,” said Chris Barton, secretary treasurer of SEIU 1199NW. “The worry is that for-profits are about the bottom line. That’s what they do – make money.

“At Deaconess and Valley, that’s not the only thing. It’s about providing for the community.”

Nelson and others declined to say how much money might be needed, how many companies have expressed interest or what specific steps might be taken to continue a rebound from precarious financial conditions that saw the system post $35 million in losses two years ago.

Empire logged profits of $2.4 million in 2005, according to federal tax documents. In 2006, Empire earned between $4 million and $5 million, according to unaudited reports, officials said.

Ideas to raise new money could range from finding smaller, myriad investment partners to help finance new equipment, to arranging a sale of buildings as part of a lease-back arrangement, to outright sale to a larger investor, officials said.

Taylor said some proposals already had been rejected as philosophically incompatible with Empire’s mission.

“We’re not a slash and burn culture,” he said.

Also unlikely is a wholesale merger with another local hospital system, such as Providence Health System, which operates Sacred Heart Medical Center.

Federal and state antitrust rules would prohibit such an action, unless Empire was in such dire financial straits that it became unavoidable, said Skip Davis, chief executive at Sacred Heart.

That was good news to members of the Spokane County Medical Society, who were aware that Empire was looking for “strategic partners” to help maintain and expand services, said Dr. Brian Seppi, the group’s president.

That group’s 850 doctors, who represent about 80 percent of the medical community, want Spokane to retain hospital competition. They’re also hoping any buyers will keep Deaconess and Valley hospitals’ nonprofit status intact.

But the doctors are most concerned that health system officials find a way to continue serving the community and make much-needed changes in facilities and equipment.

“Financially, they are doing better, but to keep at the standard expected in Spokane, they need some improvements,” Seppi said. “You’d have to see who would come in, but keeping the doors open would be the priority.”

Sacred Heart officials have adopted a “wait-and-see” attitude about Empire’s negotiations, Davis said. They’ve previously expressed interest in acquiring Valley Hospital, and they might consider buying out some of the ventures shared with Empire, especially if a “difficult” for-profit hospital becomes part of the picture, he said.

“There are some who are much more aggressive in their competitive mannerisms than others,” Davis said.

But Nelson and others emphasized that Empire’s future is still to be determined.

“A discussion is not a decision,” he said.


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