The Herald, Sharon, Pa.

August 27, 2013

Sharon Regional in tentative deal to be sold to Tenn. for-profit company

6 weeks ago, health system CEO insisted 'we are not seeking a buyer'

By Michael Roknick
Herald Business Editor

SHARON — In a major announcement Tuesday evening, nonprofit Sharon Regional Health System said it had reached a non-binding, tentative agreement to sell itself to for-profit Community Health Systems Inc.

With 1,800 employees, Sharon Regional is Mercer County’s largest employer, so the possible deal could have a major impact on the local economy.

Under the agreement, known as a non-binding letter of intent, both healthcare providers will sit down to hammer out a final deal, which is expected to take 60 to 90 days.

In a news release issued by Sharon Regional, the health system said the deal would result in capital investments and other resources to give it long-term success. Also, Cleveland Clinic would participate in clinical program development, quality improvement, and branding through its alliance with Community Health.

Tennessee-based Community Health is no stranger to this area. In recent years the company bought Forum Health, which includes Trumbull Memorial, Hillside and Northside hospitals in the Youngstown and Warren, Ohio, market.

If the deal is completed, Sharon Regional said it would retain existing employees “in good standing’’ at the same rate of compensation with their years of seniority recognized. Current medical staff would also be maintained.

Sharon Regional employees were told of the pending deal in meetings late Tuesday afternoon and early evening.

Tuesday’s announcement runs counter to a June 12 Herald interview with Sharon Regional’s CEO John “Jack’’ Janoso, and its board chairman, Bill Strimbu.

In the interview Janoso acknowledged Sharon Regional had held talks with Pittsburgh-based UPMC about creating joint alliances or “models.’’ But he said UPMC wanted Sharon Regional essentially to merge with its local affiliate, UPMC Horizon, which has hospitals in Farrell and Greenville. The offer was flatly rejected because, “ didn’t meet with our guiding principles,’’ he said.

Janoso was adamant at the time that Sharon Regional hadn’t put itself up for sale. Janoso is the third CEO at Sharon Regional in less than two years.

“We are not actively for sale,’’ Janoso said in the interview. “We are not seeking a buyer. I’m not here to polish the place up and put it up for sale.’’

But it’s obvious Sharon Regional didn’t whip up this deal in a few hours, said Dick Miller, who owns Keystone Research Inc. in Greenville. Miller managed a healthcare trust for several years and was a consultant in healthcare cost containment.

“This is unbelievable,’’ Miller said. “They’ve been telling everyone they weren’t for sale. Well, you don’t come up with this kind of agreement in two days. You know they would have been doing their due diligence on Community Health. The lies have been going on for six months.’’

It’s also clear Sharon Regional didn’t make this decision from a position of financial strength, Miller noted.

“It’s safe to conclude they are unable to continue as an independent hospital,’’ he said.

In the fiscal year ending June 30, 2012, Sharon Regional lost nearly 4.5 cents on every dollar of revenue from providing core medical services, according to Fitch Ratings.

For the first six months of the recently ended fiscal year, Sharon Regional’s recorded a net loss, Janoso acknowledged in July, but he said the last six months showed a profit. Final numbers for the year that ended June 30 are not in yet.

Barring an “unforeseen circumstance’’ Janoso said at the time he was confident the current fiscal year, which began July 1, will be profitable.

In the end though, Miller said Sharon Regional had little choice.

“This is probably the only thing that will save independent hospitals,’’ Miller said of the pending sale. “Sharon Regional, Jameson Hospital (in New Castle) and the hospital in Grove City are all in the lurch.’’

Both Grove City Medical Center and Jameson remain independent hospitals.

Sharon Regional said in Tuesday’s release that the good things about the pending deal included that local control would be maintained over healthcare decisions. Further, the healthcare provider would have a local board of trustees comprised of Sharon Regional’s medical staff and local community leaders.

But Miller said for all practical purposes if the deal goes through Sharon Regional’s board would be subservient to Community Health.

“If you buy them, you control them,’’ Miller said. “The board can say ‘We want to build a new addition.’ But you can only do it if Community Health gives you the money for it.’’

In its news release Sharon Regional said the pending deal was a year-long process of reviewing its strategic options. Further, Sharon Regional’s board unanimously approved entering into the non-binding agreement.

“We engaged in a thorough and thoughtful process to ensure the best possible future for Sharon Regional,” Strimbu said in the news release, “and determined that affiliating with Community Health Systems, a highly regarded national healthcare organization, provides the greatest opportunity for building our future success. We will also benefit from the strategic alliance announced earlier this year between CHS and the Cleveland Clinic.

The Cleveland Clinic will collaborate to advance quality and clinical programs, creating a true advantage for our medical staff, employees and, most importantly, our patients.”

Janoso was equally enthusiastic.

“Many hospitals and healthcare systems are aligning with partners that can support their operations with the significant resources and management expertise required to be successful in this dynamic period of change across our industry, especially as health care reform takes effect,” Janoso said in the release. “In CHS and the Cleveland Clinic we believe we’ve found partners that will support both our guiding principles and our values of integrity, caring, accountability, respect and excellence, and that this affiliation can advance our mission of providing comprehensive, convenient, high-quality health services close to home for the communities we serve.”

The deal is subject to regulatory approval that likely includes state approval, Miller said. If a final agreement is reached between the two health systems the chances of it being rejected by the state are nil, he said.

“Who in their right mind would go to Harrisburg to oppose this not knowing what the true financial conditions are there,’’ Miller said of Sharon Regional.

Based in the Nashville, Tenn., 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.

Community Health Systems Professional Services Corp., a subsidiary of Community Health, provides management services to the affiliated group of hospitals and is party to the agreements with Cleveland Clinic. Shares in Community Health are traded on the New York Stock Exchange under the symbol CYH.