The Herald, Sharon, Pa.

February 27, 2014

Hospital sale gets judge’s approval

$145 million deal set to close on April 1

By Michael Roknick
Herald Business Editor

SHARON — Mercer County Common Pleas Judge Christopher St. John had very little trouble Wednesday approving a deal for Sharon Regional Health System to be bought by Community Health Systems Inc.

St. John approved the $70 million sale after a 2è-hour hearing in Orphan’s Court. State regulations require such a hearing when a for-profit company wants to buy a nonprofit organization.

In this case, a unit of for-profit Community Health, based in Franklin, Tenn., is seeking to buy the nonprofit Sharon Regional. Representatives of Sharon Regional, Community Health and the state Attorney General’s office attended the hearing where several witnesses explained how the deal came about and terms of the sale were reached.

In addition to witnesses, St. John showed a binder that was a foot thick with documents previously submitted to him by Sharon Regional and Community Health giving more details of the deal.

At the end of the hearing, the judge acknowledged both “pros and cons’’ about for-profit enterprises and said it would be nice to have a crystal ball to see into the future. Ultimately, he found nothing objectionable to the purchase, which also includes Sharon Regional Physician Services, a unit that employs doctors and support staff, about 150 in all.

“This is a transaction that is appropriate and should occur,’’ he said.

Community Health and Sharon Regional representatives told St. John they expect the deal to close April 1.

During the hearing a few nuggets of new details emerged.

John Hudson, a Sharon Regional board member, said that by the fall of 2012 the board realized the organization had to find a partner or buyer. The health-care provider was mandated to undergo $30 million in upgrades, he said, and the organization “lacked access to capital.’’  Further, it was difficult for Sharon Regional to maintain its profitability under existing circumstances.

After hiring an outside consulting firm, Sharon Regional entertained joining other health providers, including Cleveland Clinic. But Cleveland wanted to partner with Community Health, Hudson said.

On May 29, 2012, the board heard presentations by Community Health and other organizations interested in buying Sharon Regional.

Sharon Regional rejected Community Health’s first offer of $60 million for the assets and another $60 million for improvements to be spent over seven years, Hudson said. The company was then asked to give its best offer.  

Community Health then upped its bid to $70 million for the assets plus $75 million in improvements over five years. Of the improvement amount, $10 million is earmarked for recruiting doctors. The offer includes 53 properties owned or leased by Sharon Regional, including the former St. Joseph’s school building and land adjacent to the main hospital which Sharon Regional bought last year.

With that offer in hand, Sharon Regional inked a tentative deal in August and over the past five months the two sides have worked to finalize the deal, Hudson said, adding that Community Health offered the highest and best deal of any they had received.

Terms call for the local health-care provider to continue operating as Sharon Regional Health System for at least 10 years.

Once deductions for such expenses as the assumption of leases are made from the $70 million price tag, $66 million to $67 million will be left.

The nonprofit entity of Sharon Regional will receive the funds from the purchase and will use that money to pay off its debt and liabilities, such as bonds, pensions and workers compensation cases.

Hudson testified he believes after all the debt and liabilities are paid, at least $10 million will be left. Those funds must go toward improving the overall health of the community such as for health classes or clinic services.

John R. “Jack’’ Janoso Jr., president and chief executive officer of Sharon Regional, said a name for the surviving nonprofit institution has not been determined. He added that roughly half of Sharon Regional’s existing board will remain with the nonprofit organization. However, Janoso said that board would be independent and have no financial ties with the local for-profit system owned by Community Health.

No decision has been made on how any funds left to the nonprofit Sharon Regional will be spent, Janoso said.

He added he hasn’t entered into contract talks for his own employment with Community Health, saying that would be a conflict of interest. He added he wouldn’t serve on the nonprofit’s board.

A local advisory board will be created to help steer the for-profit Sharon Regional, he added.

St. John asked witnesses about the future of Sharon Regional employees. With just under 1,800 employees, Sharon Regional is Mercer County’s largest employer.

Tom Miller, a division president of operations for Community Health whose region includes Pennsylvania, testified all employees in “good standing’’ will keep their jobs at “similar’’ compensation. The judge asked Miller to clarify that further and he responded that their pay would essentially remain the same and their benefits will be similar.

Barring a last-minute objection from the Attorney General’s office, virtually all the legal requirements for the sale of Sharon Regional to Community Health are in hand following St. John’s ruling on Wednesday.

If the sale is finalized as planned, which is midnight April 1, Sharon Regional will become a for-profit health-care provider on April 2.