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Hospital price tag - $116,000,000

South Boston News
SoVaNow.com / May 13, 2013
Sentara Healthcare has agreed to pay at least $116 million for Halifax Regional Health System over the next 10 years, a sum that will give Sentara sole ownership of the local hospital and related assets in a three-county area.

The News & Record obtained a copy of the affiliation agreement between the two health care systems in a Virginia Freedom of Information Act request to the Attorney General’s office, which is reviewing the terms of the deal. The proposed HRHS-Sentara affiliation already has received federal regulatory approval, and both parties say they expect the merger will be completed by July 1.

The price tag for Halifax Regional Health System is split mostly in two parts: a $75 million commitment by Sentara to invest in what Halifax Regional CEO Chris Lumsden called “strategic capital projects,” and a $40 million pledge to fund replacement and maintenance costs over the 10-year covenant period.

The contract allows Sentara to add five years to the timetable for fulfilling its capital commitments at the end of the initial 10-year period.

An additional sum to be paid at closing — $1 million to a local review board, tasked with monitoring Sentara’s compliance with provisions of the deal — raises the overall cost of the merger to at least $116 million. (See related story.)

By contrast, another hospital transaction in the region — the sale of Danville Regional Medical Center to Lifepoint Hospitals — fetched a purchase price of $215 million in 2005. The sale of the 350-bed hospital generated $200 million for a community foundation but was met by a storm of complaints from local residents unhappy with how the hospital was run by Lifepoint.

Danville Regional’s annual revenues at the time of its sale were around $180 million; the latest financial data available for Halifax Regional Hospital and its nursing homes pegs overall revenues at around $104 million. That figure does not include revenue for the Seasons At The Woodview long-term care facility or HRHS-affiliated medical clinics.

In an interview this weekend, Lumsden said the payments by Norfolk-based Sentara represent “a minimum investment” in Halifax Regional Health System and “we certainly think there’s a chance that will go up.”

The $40 million for maintenance and upkeep mostly fills in for spending that would have taken place if Halifax Regional Health System remained as it is, but the $75 million is cash that will be used to improve and grow the system, he said.

By merging with Sentara, he said, Halifax Regional gains a much larger partner for coping with sweeping change in the health care industry, and the local system also secures its best chance for future growth, said Lumsden.

“Our approach at the very beginning, our view, the board’s view and certainly senior management’s view, was to protect this asset called Halifax Regional Health System that has grown so much over the years,” he said. “Our view is that the value was going to be reinvested in the system and its people, and that was our approach at the end.

“That is exactly what I think this community would expect. This is a health care entity and I think the community would expect [us] to grow in the future,” said Lumsden.

As part of the deal, Norfolk-based Sentara agrees to maintain the 192-bed hospital as an acute care facility and to continue “essential clinical services” for at least 10 years. It will become the sole member in a new corporation that inherits the assets of Halifax Regional Health System, including the 180-bed Woodview nursing home, the 18-bed Seasons at The Woodview facility for Alzheimer’s care, the 150-bed Meadowview Terrace nursing home in Clarksville, as well as 10 medical practices in Halifax, Mecklenburg and Charlotte counties.

Sentara also gains control of various for-profit corporate entities that HRHS has set up to recruit doctors and medical professionals to the community and organize them in hospital-owned practices. Sentara also gains all cash and other tangible assets of HRHS, its intangible assets, fixtures, equipment and real estate, including its downtown office complex, Edgewood town home and medical support buildings.

The version of the affiliation agreement obtained by the News & Record does not provide dollar amounts for another stipulation of the deal — retention bonuses for Lumsden, HRHS Chief Operating Officer Thomas Kluge and Chief Financial Officer Stewart Nelson. The bonuses are intended “to incentivize the Halifax senior management team to remain with Halifax for at least three (3) years post-closing,” according to a statement that the parties jointly furnished to the Attorney General.

“I think that was a nice gesture on the board’s part. We’re very appreciative of that, and it does require achieving retention,” said Lumsden.

The deal also provides for severance agreements for three senior employees — the chief nursing officer, director of human resources and director of long-term care — that would be exercised upon their eventual departure from the system. The severance deals were recommended by Lumsden and senior management.

Lumsden said the severance agreements, for which no cost figures are provided, are “appropriate” for employees who each have more than 20 years of service with HRHS.

Another part of the agreement that remains undisclosed — it was redacted in the papers turned over by the Attorney General’s office — are “presently contemplated capital commitments” that would arise out of Sentara’s $75 million investment in the system. Items on the capital investment wish list include new technologies, business and real estate acquisitions and future professional services agreements; Lumsden said a major, immediate priority will be information technology upgrades, with the possibility down the line of adding a new nursing home or medical office building.

Although Halifax Regional has been “frugal with its balance sheet,” it is becoming harder for small, independent hospitals to gain capital financing for large projects, said Lumsden. “That is no longer an issue for us going forward,” he added. “We don’t have to fear that we won’t be able to find the necessary financing to do something.”

There are dozens of other provisions in the agreement, touching on matters ranging from HRHS’s 1,200 employees to the provision of charity care for indigent patients to the health system’s ongoing civic role in the community. Key parts include:

A commitment by Sentara to extend offers of employment to all HRHS employees in good standing at the time of the deal’s closing. For one year, Sentara will take no action to terminate any employee, except for cause, or reduce existing wages or benefits.

After one year, Sentara may adjust salaries consistent with its own compensation practices “so long as the market ranges used are consistent with” market ranges for the region, the agreement reads.

On charity care, Sentara and HRHS “acknowledge that they share a mission to provide charity and indigent care,” and Sentara pledges not to change existing policy without providing written notice to local board representatives and providing them “an opportunity to consult” with Sentara about planned changes.

Regarding referrals of patients to medical specialists outside the Sentara chain, Sentara agrees not to “mandate that tertiary referrals be sent to other Sentara facilities, “ but believes that it will “able to demonstrate appropriate clinical performance so that other Sentara facilities will be viewed as a viable option for tertiary referrals.”

A small slice — $250,000 — of the $75 million capital investment budget is set aside for one-time donations to health care or educational charities selected by the local hospital board. The money will be contributed within 60 days of the deal’s closing date.

Also contained in the pages of the affiliation agreement turned over by the Attorney General’s office is a two-page section on what should happen if Sentara disposes of its interest in the local health system — whether due to its own choice, or the result of converting into a taxable, for-profit institution, or because of bankruptcy. The local hospital board that would survive in the aftermath of the sale would have “a right of first offer” to reacquire the hospital or parts of the health system, under a pricing formula set forth under the agreement.


CORRECTION: The version of this article that appeared in the Monday, May 13 print edition of the News & Record stated that three employees who have received severance packages from Sentara are departing. They are not. The severance agreements will be exercised upon the employees' future departure from the system. The News & Record apologizes for the error.




Local boards retain input, oversight role, with caveats

Officials with Sentara Healthcare and Halifax Regional Health System refer to their pending $116 million transaction as a merger — but the text of the agreement makes plain that the local hospital system’s assets will end up solely in Sentara’s hands.

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Comments

Where is the money going? It seems this is being called a "merger" to avoid repayment to the community! Where is the money?

Comments

If Halifax County gets as lucky as Danville did with "their merger", with the Lifepoint System, we would be better off with NO hospital at all.

Comments

Seems like at least 6 people came out smelling like roses in this deal. What about all the employees whose jobs will go away when these services are combined? What about the community who paid to build this hospital? Must be pretty nice to be able to negotiate your own retirement packages.

Comments

There is no comparison between LifePoint and Sentara. Sentara is a well run organization that has its act together. LifePoint is one step up from a joke. It always amazed me that the Duke medical system decided to partner with them. But, Duke is still light-years ahead of DRMC. Duke fixed me after DRMC had basically abandoned me to lay there and die.

To their credit LP DID finally put in place a decent COO at DRMC- after several years of totally incompetent people who obviously had no interest in either this area or in offering quality health care. It was always about bottom line and profit with them; they could not have cared less about providing quality care.

But, Mr. Deaton has expended plenty of time and money to prevent Centra from opening a facility anywhere in Danville or Pittsylvania County. To quote horse and dog breeders, competition can only improve the breed.

Comments

So... DRMC sells for 215 million and a foundation (Danville Regional Foundation) gets created and 200 million of the sale goes into this foundation. That foundation then passes out the money in the form of grants to attract new business, support existing business, support non-profit organizations, etc. And this foundation is still handing out money today (http://www.drfonline.org/).

Halifax Regional sells (or merges) for 116 million and 250 thousand “is set aside for one-time donations to health care or educational charities selected by the local hospital board” to be given out within 60 days.
Whole lot of community money sure did get flushed on this one.


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