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Sacred Heart makes heated proposal

SATURDAY, FEB. 23, 2008

Hospital asks Empire Health to sell its stake in Inland Northwest Health or possibly go to court

The owners of Sacred Heart Medical Center have made a $25 million offer to buy out Empire Health Services’ stake in Inland Northwest Health Services.

It’s a move that would alter a successful 14-year partnership that has saved the competing hospital systems millions of dollars on air ambulance service, patient rehabilitation care and electronic medical records.

In a strongly worded letter written earlier this month, Providence Health and Services, Sacred Heart’s parent organization, expressed concern about how the buyout of Empire Health by for-profit Community Health Systems would affect INHS. The letter demanded that Empire accept the offer for INHS or possibly face off in court.

Empire’s chairman, however, said its share of INHS isn’t for sale and took issue with the tone of the letter.

For his part, Tom Fritz, CEO of INHS, extolled the organization’s collaborative structure and worried that if it was controlled by one hospital system, “it becomes a competitive asset rather than a community asset.”

INHS was born in 1994 out of a shared financial pain by Empire and Providence. The two hospital systems were able to ease their losses by cooperating on services that were proving too expensive and onerous for either one to provide alone.

It has blossomed into an economic asset for the hospitals and the community with more than 1,000 employees, a 2008 budget of about $145 million, and payroll and benefits exceeding $53 million.

While St. Luke’s Rehabilitation Institute and the Northwest MedStar air ambulance services may be best-known, the Information Resource Management program at INHS has become prominent. It has been described as a central nervous system for 38 subscriber hospitals in three states, allowing medical providers immediate access to patient records, medical information and other important safety and quality-of-care data.

Providence’s offer – which could exceed $25 million – comes as financially troubled Empire plans to sell its Deaconess Medical Center and Valley Hospital & Medical Center to Community Health in a $272 million transaction that includes a $100 million investment in building and technology upgrades.

The stakes are high for Providence and Empire, two hospital systems that for a century have competed for regional patients.

Chuck Hawley, vice president of government affairs for Seattle-based Providence, signaled confidence that some sort of deal could be worked out to avoid a legal showdown, or perhaps even a formal objection to the Empire-Community transaction, which must be approved by state regulators.

“We have been told (Empire) is desirous of resolving these issues,” Hawley said, referring to governance issues mentioned in the letter and Empire’s perceived unwillingness to address them. “We’re very heartened by that fact.”

Among those issues:

•If Community Health has an ownership stake in INHS, will it fund regional benefit programs operated by INHS?

•Will Community Health continue to subsidize programs for rural hospitals?

•Should Community Health have any management control over a nonprofit?

Hawley said if the Providence offer is accepted, the hospital system would ensure that all INHS services now used by Empire would remain available to Deaconess and Valley regardless of who owns the hospitals.

Yet Ron McKay, chairman of Empire’s board, said there’s little appetite for selling the INHS stake to Providence.

“No,” he said. “We are not interested in selling.”

McKay took umbrage with the 10-day demand for a decision.

“Providence does not have a right to impose a deadline on Empire,” he said. “No one does.”

“They may see sole ownership of INHS as a tremendous advantage,” he said, “and so for Providence to want to buy it is understandable.

“But I think what they are doing is losing sight of the value of this collaboration.”

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