The Herald, Sharon, Pa.

August 29, 2013

Deal subject to state review

By Michael Roknick
Herald Business Editor

SHARON — Work is under way to complete the sales agreement between nonprofit Sharon Regional Health System and for-profit Community Health Systems Inc.

On Tuesday, Sharon Regional said it entered into a nonbinding letter of intent to be bought by Tennessee-based Community Health. A final agreement is expected in two to three months.

Even if a deal is completed, that doesn’t mean the sale is in hand. Lots and lots of state and federal regulations come into play before it can be a done deal.

Getting the sale completed is very doable, said Deborah Zateeny, a Philadelphia-area attorney involved in handling health care business issues. In fact, she could not think of a single instance where the sale of a hospital in Pennsylvania died due to a rejection by regulators.

“But it’s a pretty involved thing. It could take a year or two to accomplish,’’ Zateeny said.

Why?

When a for-profit company such as Community Health seeks to buy a nonprofit enterprise such as Sharon Regional, a lengthy set of regulations comes into play.

A decade or so ago a protocol was created in Pennsylvania that details what must occur for a sale to be approved.

“The protocol requires a hospital that’s nonprofit selling to a for-profit to present the transaction in full to the attorney general’s office,’’ Zateeny said. “I can tell you that gets reviewed from top to bottom. My experience is the attorney general’s office review is very, very thorough.’’

The office reviews existing contracts, financial commitments and, if the nonprofit has a charitable endowment, it has to be clear how the endowment funds can be used after the deal is completed, she said.

“The attorney general will actively seek to ensure that health care will still be available in a community in a reasonably accessible fashion,’’ Zateeny said.

Further, a for-profit outfit must pay for the market value of a nonprofit’s assets. Sharon Regional has a federal 501(c)(3) tax-exempt designation.

“A hospital cannot simply give away its assets to a for-profit,’’ Zateeny said. “Their nonprofit status would be revoked by the IRS and penalties would follow that.’’

All of the nonprofit’s assets – such as the main hospital, treatment centers, medical equipment, even parking lots – would have to be fairly evaluated and appraised. Money paid for the nonprofit must go into a newly created foundation that provides for the health care needs of a community or to another nonprofit health provider in the general area, she added.

If a new foundation is created, it must be independent from any oversight by the for-profit purchaser.

“The attorney general is not going to allow the for-profit purchaser to control the foundation that holds the sale proceeds because of an inherent conflict of interest,’’ Zateeny said. “There would be some recipient of these funds, but it will not be a foundation controlled by the purchaser.’’

However, it’s common for some members of the outgoing nonprofit board to be named to the new foundation as long as they don’t have any personal financial ties to the for-profit buyer, she added.

Other state agencies that require certain filings include the Department of Welfare and the Department of Health. Additionally, the county Orphans Court would have to OK the deal. Federal review of the deal would also be required to ensure no anti-trust laws are violated.

If the deal is completed, Sharon Regional’s properties would eventually be added to the local tax rolls because they would no longer be tax-exempt.

Scott Andrejchak, Sharon city manager, would not venture a guess as to how much new revenue that would generate for the city. The health system already makes voluntary payments toward the cost of city services.

“They currently make payments in lieu of taxes for properties they’ve bought,’’ Andrejchak said.

As the deal was outlined to him by Sharon Regional officials, he said it sounded good.

“From what I understand, it could be a very good thing for the city and the region,’’ he said. “There are potentially a lot of advantages, not the least of which is the fact the buyer has the capacity to expand care in the region.’’

Based in the Nashville suburb of Franklin, Community Health is one of the largest publicly traded hospital companies in the U.S. It’s also a leading operator of general acute-care hospitals in non-urban and mid-size markets throughout the country.

Through its subsidiaries, the company owns, leases or operates 135 hospitals in 29 states with an aggregate of about 20,000 licensed beds. They includes the former Forum Health hospitals in nearby Mahoning and Trumbull counties that are now part of Valley Care Health System of Ohio.  

Shares in Community Health are traded on the New York Stock Exchange under the symbol CYH.

Sharon Regional is among Mercer County’s oldest institutions, providing health care services to the region for more than 115 years. With 1,800 employees, it is Mercer County’s largest employer.