Sunday, December 22, 2013 10:36 PM
Attorney general reviewing hospital deal
By Jon Jimison | Times Editor
Wilson Medical Center’s proposed joint venture with Duke LifePoint Healthcare is now under active review by the North Carolina attorney general’s office.
The office received hundreds of pages of documents from Wilson Medical Center detailing the deal. Those documents will also be available for public inspection this week, a public notice indicates.
Wilson County commissioners are expected to take up potential approval of the proposed transaction agreement of ownership at their Jan. 6 meeting at 7 p.m. There is expected to be a public hearing as well. In addition, commissioners are expected to vote on releasing an existing reverter clause, which is essentially a real estate interest, and replacing it with a new one.
The public process taking place now stems from the charter and bylaws established when the hospital transferred from county ownership to become a tax-exempt organization.
Wilson’s proposed hospital deal isn’t the only one the attorney general’s office has looked at recently.
Noelle Talley, public information officer for Attorney General Roy Cooper, detailed the hospital sales and mergers the office’s Consumer Protection Division has reviewed in recent years for The Wilson Times.
Recent reviews include Roanoke Chowan, CMC Union (a merger into Carolinas Healthcare System), Mariah Parham and Person Memorial.
Talley said the office expects to review proposed sales of hospitals in Rutherford County and Highlands, N.C. to Duke LifePoint as well.
Officials are looking at fairness, community benefit and making sure no insiders get any unfair benefit out of it, said Thomas S. Stukes, the hospital’s attorney with Womble Carlyle Sandridge & Rice.
"The attorney general’s office has all the information they need to evaluate the transaction,” Stukes said.
The documents demonstrate that the hospital board exercised its fiduciary responsibility and looked at the universe of prospects, according to Stukes.
Hospital officials plan a Jan. 31 closing date if all goes according to plan.
Duke LifePoint Healthcare is essentially offering $56 million for an 80 percent majority ownership interest in Wilson Medical Center. In its due diligence of the deal, Duke LifePoint valued Wilson Medical Center at $70 million and the $56 million represents 80 percent of that value.
The deal calls for an 80/20 joint venture with Duke LifePoint Healthcare securing majority ownership interest. The governing board would have 50/50 composition.
Stukes points out that the county is getting an equal voice in voting with only a 20 percent ownership interest.
The agreement obligates the joint venture to spend a minimum of $120 million in connection with capital improvements at the hospital during the next 10 years. The agreement states that 180 days after closing, officials will come up with a strategic facility plan and capital plan.
The Times reviewed the documents and will detail aspects of them as well as an interview with Stukes and Hospital CEO Rick Hudson here and in the days leading up to the public hearing date and the potential closing date.
Hudson’s last day as CEO will be Jan. 31. But he’s agreed to help with certain consulting duties for an additional six months.
Hudson will work with the hospital’s legacy board on post-closing work. For example, there is an audit after the deal closes.
Documents reveal LifePoint affiliates will offer employment to nearly all of the current employees of WMC Group with the exception of certain senior-level management employees who have chosen to pursue other opportunities.
Wilson Medical Center’s Chief Financial Officer Lynn Lambert has accepted a job elsewhere. DLP’s model doesn’t have a chief medical officer, so Rick Guarino is moving back to clinical practice.
In addition, Catherine Rhyne, the interim chief nursing officer, has accepted a job closer to her home in Arizona, Hudson said.
He said DLP will have officials such as a chief operating officer and chief nursing officer ready to start.
DLP officials came in recently and performed drug testing and criminal background checks, Hudson said.
"Everyone who passes will be offered employment,” Hudson said.
Hudson indicated an interim CEO would come in on Feb. 2. Duke LifePoint officials won’t announce who the interim CEO is until after the first of the year, according to a LifePoint spokeswoman.
Transitioning ownership of a hospital is complicated. Hudson said there are things taking place to aid any future transition.
"They are having certain calls once a week on financial and HR issues to make this transition go,” Hudson said. "There will be enough information exchanged for transition purposes they’ll be able to hit the ground and know where everything is at.”
Hospital officials always knew the county had a reverter in the deed. It was later in the process as everyone became aware a new reverter clause had to take its place.
When the county originally transferred the hospital facilities, it did so under statutes that authorized the county to transfer or sell without a bid process to a nonprofit corporation if a majority of the board is appointed by the county, Stukes said. But it did require what’s known as a reverter clause.
A reverter is essentially an interest in land from a real estate perspective.
The statute dictates the hospital agrees that if it should not operate as a community hospital, all of the ownership rights will revert to the county. The hospital must operate as a general community hospital and have an indigent care policy.
Stukes said the new reverter is different and more elaborate. It’s under state statue 131E.13.
The new clause will be there perpetually, officials said, unless the hospital somehow manages to move.
It will obligate the joint venture to operate the hospital as a general community hospital and not terminate a group of listed services unless the state authorizes it.
The joint venture must adopt essentially the same indigent care policy in place now and participate in government reimbursement programs likeMedicaid.
"As long as the deed is in effect it will run with the land and it will bind this land for as long as the hospital is operated on it has to to be operated under these covenants,” Stukes said. "It doesn’t have a timeframe. It would persist regardless of a sale down the road as long as the hospital is located where it’s located.”
The proposed joint ownership agreement between Duke LifePoint Healthcare and Wilson Medical Center includes an option that would allow WilMed to sell its minority stake in the hospital to Duke LifePoint after the second anniversary of the deal’s closing.
Known as a "put option,” the provision states within 30 days after each of the second, third, fourth, fifth and 10th anniversaries of the closing, Wilson Medical Center would have the right — but not the obligation — to put its entire membership interest in the joint venture to Duke LifePoint.
The purchase price for the membership interest, as it’s termed, would be dictated by the fair market value at the time the option is exercised.
The legacy board of Wilson Medical Center would make a decision, if any, as to whether to exercise the option.
In addition, there’s a "call option” that will be included in the definitive agreement. If Wilson Medical Center’s ownership has fallen below 10 percent, Duke LifePoint has the option, but not the requirement, to buy the rest of the hospital.
Again, the price would be dictated by the fair market value at the time.
The call option, which Hudson didn’t believe was likely to come to fruition, could be possible if Wilson Medical Center failed to maintain its capital commitments on the 80/20 membership split.
In a letter that accompanies the documents to the county, Paul Hannah, senior vice president of development at LifePoint/Duke LifePoint, said the partnership is uniquely positioned to improve access to services and specialists, enhance market share and best position the hospital for sweeping health care reform.
"Duke University Health System and LifePoint have enjoyed a mutually successful relationship,” Hannah said. "We share an interest in collaborating with hospitals, physicians and patients to bring quality health care services to non-urban communities.”
"Duke offers clinical and quality guidance as well as access to highly specialized medical services,” Hannah said. "LifePoint will provide a range of management, financial and operational resources, including access to capital for ongoing investments in new technology, facility renovations and additional sites of care.”
The transaction calls for Duke LifePoint to form a Delaware limited liability company that would act as a holding company for its subsidiaries to own and operate Wilson’s hospital, including WilMed Nursing Care and Rehabilitation Center.
Although governance is through the 50/50 board of Wilson/Duke LifePoint, there are additional boards, all of which report to the main board. The appointed legacy board of trustees reports to the 50/50 board. Members will include physicians on the medical staff, community leaders and the CEO. A Wilson commissioner would have observation rights.
A Physician Advisory Council would be established along with a Quality Oversight Committee.
HOW IT STARTED
Wilson Medical Center officials announced their intention late last year to seek a partner for the future.
And a united Wilson Medical Center board of directors later announced it had signed a memorandum of understanding for a joint venture with Duke LifePoint. The implementation of the Affordable Care Act approved by Congress and signed by President Barack Obama March 23, 2010, is driving the movement along with cutbacks in medical reimbursements.
These affiliations and nationwide trends have proponents and some critics who claim the ties could lead to higher patient bills and insurance costs as the organizations gain negotiating clout. On the other side, hospital supporters said smaller facilities can’t survive and operate for their communities under the rapidly shifting reform climate, and many of these hospitals face outdated facilities and need multi-million-dollar upgrades.
The hospital, which has more than 1,300 employees, has emerged as the third-largest private employer in Wilson County. The hospital and its related facilities sustain a $56 million payroll.
Duke LifePoint is a joint venture of Duke Medical and LifePoint Hospitals formed to build a network of hospitals and health care providers. Duke University Health System calls Durham home. LifePoint Hospitals is headquartered in Brentwood, Tenn.
LifePoint alone plans to be in 60 communities in 20 states by the end of the year. The Duke LifePoint joint venture is in four hospitals.
State regulatory approval and moving past the county’s public process with commissioners are two of the biggest pieces of the puzzle in the process. The Jan. 6 meeting could potentially conclude the public process with respect to Wilson County government.
Talley said the attorney general’s office focuses on:
• Whether the charitable mission of the nonprofit hospital will continue under the new ownership;
• Whether the nonprofit hospital exercised due diligence in getting full and fair value for its assets; and
• Whether there are any conflicts of interests in the transaction, such as whether it results in any exorbitant payments to individuals.
State law requires a nonprofit to give the department written notice "30 days before it sells, leases, exchanges or otherwise disposes of all, or a majority of, its property if the transaction is not in the usual and regular course of its activities.” The notice must "include all the information the attorney general determines is required for a complete review of the proposed transaction.”