May 1, 2008 in City

Empire suitor criticizes delay

By The Spokesman-Review
 

Community Health Systems criticized the state of Washington for taking “an inordinately long period of time” to scrutinize the takeover of Empire Health Services, contributing to the financial problems of the century-old Spokane hospital group.

In remarks to financial analysts Wednesday morning, Community Health CEO Wayne Smith said he expects the cash losses at Deaconess Medical Center and Valley Hospital and Medical Center to wane now that the hospitals have made a series of tough budget moves under an interim management team, including layoffs of certified nursing assistants and other employees.

Smith said hospital sales often result in temporary financial setbacks due to uncertainty.

“The wait is detrimental until someone gets in there and starts making the right decisions,” he said, referring to hospital sales in general.

Larry Cash, chief financial officer of Community Health, told analysts as part of his first-quarter earnings remarks that he remains positive that the acquisition will be in the best interests of the company.

Community Health has agreed to pay $156 million for the hospital system, down from the $172 million deal struck at the beginning of the year.

The $16 million difference would come out of the money for a new foundation, leaving it with an estimated $84 million rather than the $100 million initially proposed. The rest of the money would be used to pay off bonds and other debts.

Separate from the cash price is an unchanged term requiring Community Health to spend another $100 million on hospital remodeling and upgrades within five years.

The lower price remains within the $125 million to $175 million fair market range, according to Cain Brothers, a consulting firm that brokered the sale on behalf of Empire.

And the price remains among the best offers Empire received in its months-long search for a buyer, according to a review of recently released records from the Washington Department of Health.

Ten interested parties submitted preliminary offers, including eight for-profit companies, one nonprofit hospital system, and one Spokane investment group called Outreach Services.

The for-profit companies were Community Health, Capella Healthcare, Health Management Associates, Hospital Partners of America, Merit Health Systems, Triad Hospitals, Universal Health Services and Vanguard Health Systems.

The nonprofit hospital group was Adventist Health, a Seventh-day Adventist Church-affiliated hospital system that runs Walla Walla General Hospital along with 17 others in California and Oregon.

Several of the for-profit hospital systems included an option for a minority ownership stake in Empire.

Several Catholic Hospital systems solicited by Cain Brothers to submit bids cited conflicts because of Providence Health Care, Spokane’s large Catholic health care company that owns competitors Sacred Heart Medical Center and Holy Family Hospital.

Smith called Spokane a good growth market despite Empire’s problems.

Asked by an analyst if there was anything Community could do to shore up Empire’s condition, Smith said no.

He said Community generally doesn’t get involved in the decision-making at a hospital until it establishes ownership.

Community Health is still working to integrate the Triad Hospital system following its $6.8 billion takeover last summer.

The company’s first quarter revenues were $2.7 billion. Profits were $60 million.

Community is the largest publicly traded hospital company in the United States.

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