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HRHS, Sentara finalize merger
SoVaNow.com / July 04, 2013Sixty years to the day after first opening its doors as an independent community hospital, Halifax Regional Health System has become part of Norfolk-based Sentara Healthcare.
The two organizations met their projected July 1 deadline for completing the merger, with Sentara assuming all assets of the local health system. Sentara and HRHS closed on their deal Monday after receiving formal approval from Virginia Attorney General Ken Cuccinelli.
Both sides said this week the transaction went smoothly. “The application went through unchanged,” said Cheri Hinshelwood, a Sentara spokesperson in Norfolk.
Added Chris Lumsden, Halifax Regional Health System CEO: “We fully expected it [approval]. We had a really good meeting with the Attorney General’s office several weeks ago in Richmond. They told us approval was forthcoming.”
The deal is valued at $115 million — with Sentara agreeing to provide $40 million for replacement and maintenance costs and $75 million for major capital commitments over the next 10 years. The affiliation agreement includes provisions that will allow Sentara to stretch out the timetable for capital investments by another five years if it deems necessary.
The July 1 closing date fell on the 60th anniversary of the hospital’s opening on July 1, 1953, according to historical information presented at hrhs.org, the local health system’s website.
Halifax Regional Health System includes the 192-bed South Boston hospital, nursing homes in South Boston and Clarksville, the Seasons At The Woodview skilled nursing facility for dementia care in South Boston, and physician practices in Halifax, Mecklenburg and Charlotte counties. Also part of the system is the Halifax Regional Development Foundation, the hospital’s charitable-giving arm, as well as a not-for-profit property management company and a for-profit subsidiary for developing physician practices.
Sentara, a $5 billion not-for-profit corporation with a medical staff of 3,680 physicians, becomes the sole member of the local health system following the transfer of assets. Halifax Regional Hospital becomes the company’s 13th hospital, all located in Virginia.
Hospital officials said they plan to host a deal-signing ceremony in South Boston on July 16, although the details have not been set.
“Our executives are going to be there for that,” said Hinshelwood.
Lumsden said he felt “really good” about the “changes that are going to occur just by being part of a bigger family” with Sentara. One possible indication of a comfortable fit: questions on how Halifax Regional should be branded —either under the Sentara nameplate or using the current name — really haven’t come up in a significant way, he said.
Lumsden described Sentara’s approach as “we’ll be a resource, but it’s really your organization and we’ll work together with you on that.
“I feel good that we’re part of a really high quality organization and a lot of the decision-making will remain here in southern Virginia,” he said.
Under the terms of the merger agreement, Halifax Regional Health System, Inc., the parent corporation, will essentially become an oversight board, tasked with monitoring Sentara’s compliance with the contract terms. The $115 million transaction price includes a $1 million carve-out amount to finance HRHS’s existence over the 10-year covenant period.
(A previous report in the News & Record erroneously set the overall value of the deal at $116 million, owing to confusion about the source of the $1 million expenditure. The money will come out of Sentara’s pledged $75 million capital commitment. However, the full cost of the merger will be somewhat higher than $115 million with the agreement by Sentara to provide retention bonuses to Lumsden, Chief Operating Officer Thomas Kluge and Chief Financial Officer Stewart Nelson. Sentara also has agreed to provide severance packages for three other top executives upon their retirements).
Sentara’s $40 million pledge for maintenance and upkeep replaces spending that would have occurred for the most part had Halifax Regional Health System remained independent. By contrast, the $75 million capital commitment will help to fuel the local system’s future growth, said Lumsden.
Asked about specific uses for the money, he pointed to the need for new medical office building and more nursing home beds for the area. Already, the hospital currently is seeking to gain state licensing for 54 additional nursing home beds in the wake of South Boston Manor’s shutdown earlier this year. Halifax Regional wants to add 36 beds at The Woodview and another 18 beds at MeadowView Terrace in Clarksville.
A new nursing home is a distinct possibility for the future, he added: “People kind of ran away from [nursing homes], we ran to them, and they’ve done pretty well.”
Another likely focus is expanding existing services instead of adding expensive new services, such cancer radiation therapy. Lumsden said a radiation therapy center is not an investment “we could easily support, nor would the state readily support,” although he added, “that’s one thing I’d like to have someday in our community because it’s such a painful thing” for cancer patients to travel long distances to receive treatments.
Many of the medical specialties currently offered by the hospital would benefit from an expansion of staff, another priority that Lumsden raised. “We’re really quite fortunate to have most of the specialists you’d expect to have a rural hospital.” However, instead of having one physician in specialties such as neurology and orthopedics, “maybe one day we can support two.
“We’re really focused on how we can help the existing medical staff that we have to expand,” he said.
One provision of the Sentara merger — giving out $250,000 in donations to outside charitable organizations — will be carried out in the next 60 days, said Lumsden. He declined to identify the recipient organizations, but said hospital giving would be much the same as it has been in the past. The number of donations will be “more than a dozen,” with funds going to health- and education-related organizations in the hospital’s three-county service area. Lumsden said the decisions on how to spread the money have been made, but he doesn’t expect much publicity with the gifts.
“We don’t have a big party and fanfare. We do it because we think it’s the right thing to do.”
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