The Herald, Sharon, Pa.

February 7, 2014

Hospital assets sale price: $70 million

Testimony heard at public hearing

By Michael Roknick
Herald Business Editor

SHARON — The sticker price for Sharon Regional Health System’s assets in the proposed sale to Community Health Systems Inc.: $70 million.

That price was disclosed for the first time Thursday afternoon at the state Attorney General Office’s hearing on the proposed sale. Around 50 attended the hearing held in the council chambers at the Sharon city building.

The hearing lasted under 40 minutes with fewer than 10 people testifying. The AG’s Office is required to approve the deal along with the Mercer County Orphan’s Court, where a hearing is scheduled for Feb. 26.

With it looking like this deal is on the fast track, non-profit Sharon Regional said Wednesday it reached a definitive agreement to be bought by a unit of for-profit Community Health Systems, a Nashville, Tenn-based company. Reaching a final sales agreement completes five months of negotiations since a tentative deal was announced Aug. 27.

Sharon Regional on Wednesday said that, among other things, the deal calls for Community Health to invest a minimum of $75 million in “facilities, services and medical technology’’ over the next five years.

In testifying at the hearing, John R. “Jack” Janoso Jr., Sharon Regional’s president and CEO, said Sharon Regional’s board took a year looking at a variety of options about its future, including being bought by UPMC and Highmark. Joining a larger organization, he noted, would provide such things as better service, better quality of care and economic stability for the organization.

After extensive research, the board unanimously agreed that being acquired by Community Health was the right choice, Janoso said. If the sale gets all the required regulatory approvals, the new local healthcare system will have a local advisory board and will continue to provide care for the poor.

Tom Miller, president of Division V Operations with Community Health Systems Professional Services Corp., testified on behalf of the acquiring company. Established in 1985, Community Health bought its first Pennsylvania hospital in 1999 and now owns more than a dozen in the state. In all, the company’s affiliated Pennsylvania hospitals employed more than 12,000, paid nearly $23 million in taxes and provided more than $220 million in uncompensated care in 2012.

He said many aspects of Sharon Regional Health System will remain after the proposed deal is completed, including the name.

“Among the few changes that will take place as part of this transaction is that the hospital and related satellites will become tax-paying businesses that will infuse a significant new revenue stream into the community,’’ Miller said.

Joann M. Jofery, a local attorney, also testified. She questioned why there was such a rapid pace for the deal to get completed.

The AG’s Office was requiring all inquiries to the deal be submitted to its office in a little over a week before the Orphan’s Court hearing, and she said that wasn’t enough time for the office to thoroughly investigate issues.

She also asked the AG office to inquire why it took so long for recent nursing contract negotiations to be completed at Northside Medical Center in Youngstown. Community Health bought that hospital in 2010 and it was the longest contract negotiations at that hospital, she said.

Further, a TV newscast of the sale, she said, sounded like it was a done deal.

In response, Gene J. Herne, senior deputy attorney general, who presided over the hearing for the AG’s office, said the sale was not a done deal. He also said his office would continue to inquire into the sale right up to the Feb. 26 Orphan’s Court hearing date.

Lonnie McFall, a representative of the Carpenters Union, testified by asking the AG’s Office to inquire if the future Sharon Regional will continue to use its regular contractors and what its plans were for the former St. Joseph’s Catholic school it bought. A woman who said she lived near the school also asked the AG’s office to inquire what the plans were for the school property adjacent to the Sharon hospital.

Paul O’Brien, president of O’Brien Construction in Brookfield who said he was a board member of UPMC Horizon for a dozen years, testified he was in favor of the sale.

“I’m thrilled about this,’’ he said, adding he was excited about the “money this would bring to the table,’’ and how this would keep 1,800 jobs in Mercer County.

Sharon Regional is the largest employer in the county.

After the meeting, Sharon Regional officials said the sale price does not include the assumption of Sharon Regional’s debt. In ballpark figures, the bond debt of the organization was in the neighborhood of around $24 million. When looking at other debt, which included mortgages, lease contracts, and pensions obligations, the total overall debt of the organization was somewhere under $40 million, they said.

A couple of managers from UPMC Horizon, which has hospitals in Farrell and Greenville, were spotted in the audience but they didn’t testify.

• • •

Is Sharon Regional Health System being sold?

Technically, no. It’s the assets of Sharon Regional that are being sold to a unit of Community Health Systems Inc.



What are Sharon Regional’s assets?

Basically, everything it owns such as its hospital, buildings, parking lots, medical equipment and things like that.



Why would a company just buy the assets of an organization and not the entire enterprise?

By buying just the assets a company doesn’t have to absorb the debts and future liabilities of an organization, such as pension costs, ongoing legal suits, mortgages, bond obligations and other debt.



OK, so what’s the advantage in that?

Future obligations are an unknown; it could end up costing a company much more if they assumed all the future debts of an organization.



What’s the sales price of those assets?

As it’s now structured, $70 million.



Who set that price?

Under state regulations, a fair market price of all the assets of a non-profit company must be paid for by a for-profit company. Sharon Regional and Community Health Systems believe that is the fair market value.   



Can that figure change?

Yes, if the Attorney General’s Office thinks the assets of Sharon Regional are worth more they can go to court and ask a judge that the sales price be increased.



Who made the decision to sell Sharon Regional’s assets?

Sharon Regional’s board of directors. It was a unanimous decision by board members.



So Sharon Regional will no longer exist?

Actually, Sharon Regional will continue to exist for quite awhile as a non-profit entity.



Why?

After the sale is completed, the non-profit Sharon Regional will be responsible for settling all of its outstanding obligations, such as pensions and legal suits.



How long will that take?

Years. It may take five years before they get a handle on that, maybe more, maybe less.



How much money will be left after all that debt is paid?

Nobody knows. But the best guess is it will be millions of dollars, perhaps even tens of millions – but that’s just a guess.



Wait a minute, why can’t they say now exactly how much money will be left?

The current debt of Sharon Regional now is somewhere under $40 million. But a number of these debts will be negotiated, such as healthcare claims and possibly ongoing litigation. Also, an adult patient has the right to file a malpractice lawsuit two years after they claimed to have been injured. In the case of a child, Pennsylvania law allows them up to 18 years to file a malpractice lawsuit. As a result, future debt could arise that doesn’t exist now.



So once the non-profit Sharon Regional pays off all its debts it folds as an organization?

As it now stands, no. The plan calls for Sharon Regional to continue and use the leftover sales money for the community.



Can they spend the money on just anything?

No. The Attorney General’s Office will require them to spend it on their original mission, which is to improve the overall health of the community.



Like what?

Could be a variety of things like health classes, exercise programs, medical care to help the elderly, stuff like that.



Who controls Sharon Regional after the sale of its assets?

A board that has to be independent of Community Health Systems.



What if that board decides to blow the money on yachts, sports cars and wild parties?

They will draw the ire of the Attorney General and likely face criminal prosecution.



Comments or questions about the proposed sale can be sent to the Attorney General’s office in Pittsburgh and should be directed to:

Gene J. Herne, Senior Deputy Attorney General, Charitable Trusts & Organizations Section, 564 Forbes Ave.-Manor Bld., 6th Floor, Pittsburgh, PA 15219

Fax: 412-565-3181

Phone: 412-565-3581

Email: eherne@attorney general.gov