Board OKs $710 million sale of Memorial University Medical Center

The board of the parent corporation of Memorial University Medical Center on Wednesday evening unanimously agreed to a proposal from the Hospital Corporation of America to sign a letter of intent to purchase the assets of the hospital and the Chatham County Hospital Authority in a deal valued at $710 million.

"This will essentially be a sale of the hospital," said J. Curtis Lewis III, board chairman of Memorial Health. "I think it's a very positive thing for the community."

He praised HCA, a Nashville, Tenn.-based for-profit health care provider, calling them "the gold standard."

HCA will now have a 60-day period to conduct due diligence, Lewis said, adding, "Our next step is to keep the place going."

The deal is valued at $710 million. Included in the $710 million purchase fee is $430 million, which will pay off bonds and other debts as well as $280 million over the next 10 years to fund capital improvements - $100 million for non-routine capital expenditures and $180 million for routine capital expenditures.

All other proceeds of the sale will go to the Chatham County Hospital Authority for creation of an indigent care trust fund.

The hospital board's action came after an earlier action by the authority where they signed a letter of agreement with an unnamed group, contingent on the board's approval.

"We're going to close this by fall of this year," said Dr. Frank Rossiter Jr., who chairs the Chatham County Hospital Authority.

He said the authority insisted and got guarantees that, as part of the deal, HCA will maintain core services including Level 1 trauma care, the Level 3 neo-natal ICU and Mercer University School of Medicine Savannah Campus at Memorial.

The build-out of the children's hospital and cardiovascular center were also included. Also included in the deal is a commitment to use the existing names of Memorial University Medical Center and related programs, including the Curtis and Elizabeth Anderson Cancer Institute and the Dwaine and Cynthia Willett names on the children's hospital.

Rossiter and Lewis emphasized that Memorial will remain the region's safety net hospital and that its core mission will remain in place.

HCA resurfaced last year

HCA operates health care facilities, managing 170 hospitals, 71 urgent care facilities and 830 physician clinics with a total of 44,000 hospital beds and 37,000 active medical staff, according to its 2016 annual report.

Its revenue for 2016 was $41.5 billion. Meanwhile, Memorial's 2016 financial report showed a loss of almost $44 million, with total revenues of $581 million - a significant increase from the previous year's $22.5 million loss, but one officials had warned of for several years.

Memorial has 604 beds.

HCA's bid resurfaced last May as a lease, acquisition or joint venture for Memorial shortly after negotiations for a shared partnership agreement with Novant Health Inc., a Winston-Salem, N.C.-based nonprofit, fell apart.

Memorial officials initially identified Novant as a strategic partner in a deal they said would bring $295 million into Memorial over the first 10 years of the agreement and pay $163 million in bonds backed by Chatham County.

Then-board chairman Harry Haslam Jr. called it a "make or break" deal for the hospital and its financial future. Those negotiations had gotten serious in September 2015 and most of the details resolved by Feb. 12, 2016. The Memorial board unanimously approved the agreement March 29, 2016.

They broke down when Novant President/CEO Carl S. Armato withdrew in a May 9, 2016, memo over concerns that the Chatham County Hospital Authority's role in Memorial's operations and apparent contention between the authority and Memorial Health Board of Directors did not bode well for a successful partnership.

Among the contributing factors to the breakdown of negotiations was the insistence by the hospital authority that core safety net services be guaranteed over the life of the 40-year lease held by the authority.

Rossiter called the HCA proposal a better deal than that offered by Novant - "definitely, no question about it."

The joint announcement comes just days after Memorial interim CEO Kerry Watson began work Monday to replace outgoing Maggie Gill as president/CEO of Memorial Health. Gill resigned in February from the post she had held since 2011, but agreed to remain to assist in the transition.

HCA's offer mirrored its Sept. 9, 2015, proposal to Gill that placed the value of the hospital at between $550 million and $575 million with a payment closing at 80 percent of the total value.

Gill blamed the breakdown on the authority and what she said were its repeated changes on the agreement, which created doubts that Memorial really wanted the partnership to happen.

Then-authority board chairman Don Waters and treasurer Art Dana both said they were surprised - Dana said "blindsided" - by the abrupt end of discussions, with Dana suggesting the authority was eager to renew discussions whenever Novant was ready.

In the aftermath of the breakdown, Waters' board unanimously voted to move forward in seeking a new financial partner for the hospital and invited the Memorial board to join in a unified effort. Haslam and the board approved a new partner negotiating committee in June to seek a strategic partner and said the committee would act with urgency. That six-member group was later expanded to eight, four from each board.

However, since four authority board members also sit on the hospital board it was not a one-board issue.

Audit results undisclosed

Meanwhile, an independent audit of Memorial's finances ordered by the Chatham County commissioners on behalf of the hospital authority remains a work in progress with no release date.

Chatham County Commission Chairman Al Scott and his board approved $195,000 in public funds in August for the audit by the Charlestown, W.Va., accounting firm of Arnett Carbis Toothman.

Scott has said it is past time for "some restructuring" of Memorial's business model, but has insisted the health care provider is safe as a vital institution here.

Scott has said that, once complete, the audit should provide recommendations to cut losses, reduce costs and shore up finances that Memorial officials should consider.

Hospital officials have blamed recurrent financial hurdles that have plagued the system, including losses under the Affordable Care Act, reduced Medicare and Medicaid payments as well as reduced disproportionate share payments for care for the indigent and under-insured.

A recurring drag on the bottom line is the cost of providing care for those patients.

They have also noted that Memorial is the only safety net hospital in the state that does not receive funds from its home county.

But Scott said the county backing the 2012 bond issue - he called Memorial's bond rating "almost junk" - and high interest payments on the debt allowed restructuring to free up available cash for operations and funding for plans and equipment.

He also pointed out that the county is spending $5 million annually for the Curtis Cooper Primary Health Care on East Broad Street and the J.C. Lewis Health Center on Fahm Street, which cares for low-income or uninsured patients who otherwise would arrive at Memorial's emergency room.

"I recognize that things happen that make them less profitable. That's just a fact of life," Scott said.