As a community leader and past chairman of Empire Health Services, I have witnessed the financial challenges faced by our local hospitals over the past decade, caused by rising charity care, declining Medicaid and Medicare reimbursements, and an increasingly competitive marketplace. It is a reality that forced the merger of locally based Providence Services (which operated both Sacred Heart and Holy Family hospitals) with the larger Seattle-based Providence Health Systems in a move that created a stronger 27-hospital organization.

Only three years later, Empire Health Services is reaching the end of an exhaustive eight-month review by the state of its own application to sell Deaconess and Valley hospitals to Nashville-based Community Health Systems, a well-regarded for-profit operator of 110 hospitals in 28 states. Because it involves the conversion from EHS’s nonprofit status to CHS’s for-profit structure, the transaction has been much more visible and has raised justifiable concerns about the ability of CHS to deliver the same high-quality patient care as Empire, ongoing commitments to maintain affordable care and access for the uninsured, and continuation of research and education programs. It also raises questions of how sale proceeds will continue Empire’s 100-year-old mission of quality health care for our region.

Those attending recent public hearings saw evidence of an impressive level of analysis conducted by the state Department of Health and its consultants, as well as an overwhelming level of community, employee and physician support for the sale. Civic leaders who visited CHS hospitals testified the company enjoys a long and credible track record of honoring past commitments to communities it now serves with the highest of care standards. The hearings also revealed a more generous charity care policy, ensuring greater access for the uninsured and working poor. Other details include a commitment to ongoing health education and clinical research, as well as continued collaboration with Providence on Inland Northwest Health Services and other community initiatives.

At close of the sale, the new foundation is expected to receive approximately $100 million in net cash proceeds. From these proceeds, the foundation will be responsible for paying an estimated $20 million in retained liabilities. These include things such as pension obligations and medical claim tail insurance, final Medicare and Medicaid settlements and transaction costs. After paying these liabilities, the foundation is expected to net an endowment of $80 million to support critical community health care needs. The resulting organization will be the largest charitable foundation in the Inland Northwest.

The size and risk of these trailing liabilities have been estimated by professionals, all highly knowledgeable about EHS’s operations and its financial position. Once transferred to the foundation, the obligations will be managed by individuals with the expertise in these specific areas to settle these liabilities at the least cost. Overall governance of the foundation will be overseen by a board which possesses the business experience to oversee the management of these obligations, while focusing on the charitable mission of the organization. The initial foundation board proposed by EHS strikes a commendable balance of those skills and knowledge.

It is likely that the foundation will be able to pay off these liabilities at amounts less than the estimated $20 million, retaining the balance for community benefit. In the numerous hospital sale transactions that have occurred across the country, it is typically the seller’s responsibility to settle trailing liabilities—similar to when an individual sells their own home. In this case, if the foundation does not assume the responsibility for settling these liabilities, EHS would be required to hold a substantial portion of the proceeds in escrow, instead of making needed community healthcare-related grants immediately available with those same dollars.

It is also important to note that an independent review of the sale has been commissioned by the state and completed by the national accounting firm KPMG. KPMG’s evaluation and report has validated that the proposed sale price significantly exceeds the fair market value of EHS’s assets, even after the estimated impact of retained liabilities on the net proceeds from the sale.

The bottom line is the structure of the transaction, the investment in our community and the creation of a significant community foundation, are all positive for our region and our residents. Pending tentative state approval in the next several months, our region can count on CHS’s future role in maintaining a competitive, high-quality regional health care delivery system and the role of the foundation in carrying out Empire’s mission of community health and access for the less fortunate.