Community Health Systems slapped a “NOT FOR SALE” sign on its share of Lutheran Health Network after a group of local physicians made it an offer it could – and did – refuse.
The board of the Tennessee-based parent company announced that it does not intend to have further discussions about a potential sale, according to a statement it released May 22.
The statement followed a flurry of media speculation about a proposed buyout; a press conference hosted by members of Fort Wayne City Council showing support for a buyout; a rally in support of a sale; and a letter of support from state legislators.
A “grossly insufficient” offer
According to CHS, 10 physicians formed an entity called Fort Wayne Physicians LLC last fall and asked CHS to sell Lutheran Health Network to a private equity firm or other investors, including the doctors.
Although it initially declined to consider a sale, CHS agreed to look at a “serious, fully market value offer” if the doctors could produce one. According to CHS, they did not.
The physicians described a proposed purchase price of $2.4 billion which CHS believes undervalues LHN by at least $1 billion and is well below the valuation level CHS received for other recent divestitures, its statement said.
“In the six months that have followed, the physicians refused to sign a standard non-disclosure agreement under which due diligence and negotiations could have occurred; never produced a qualified buyer for direct discussions with CHS; never conducted formal due diligence; never identified which assets would be included in a transaction; never described how a transaction would be structured or financed; and never submitted any kind of written proposal or offer for evaluation,” the statement read.
“In various communications between the parties, the physicians threatened that, unless a sales transaction occurred on their terms and to a buyer of their choice, business disruptions would occur, inflicting damage on LHN,” CHS also alleged.
Greater Fort Wayne Business Weekly was unable to reach eight of the 10 physicians who CHS says are minority investors in LHN hospitals before deadline. The two physicians who were reached declined to comment.
CHS reaffirmed its commitment to invest $500 million in capital projects at Lutheran Health Network facilities across northeast Indiana over the next five to six years, it said in its statement.
According to CHS, it asked LHN leadership to present a plan to advance the network and approved the half billion dollars in capital expenditures earlier this year.
However, a group of past and present LHN employees gathered for a rally in a parking lot at Lutheran Hospital May 20 to send a message to CHS that its investment was not acceptable and “too little, too late.”
“Trust is earned. Not purchased,” read a flyer for the event that circulated social media.
The message referred to the parent company’s lack of investment in LHN, according to employees who attended the rally. Michael Barranda, a member of Fort Wayne City Council and a member of the St. Joseph Hospital Board of Directors, described the situation as such:
“We’re subsidizing a health system that is really taking advantage of our money and not bringing it back to our community so that we can invest in our hospitals, so that we can take care of the people of Fort Wayne and northeast Indiana.”
The cash-strapped CHS sold off other hospitals to generate funds to pay down its debt over the last several months. LHN is one of the most successful operations CHS owns, CHS has previously stated.
Irene Wagley, a nurse of 41 years who works in Lutheran Hospital’s neonatal intensive care unit, expressed concern over 25-year-old hospital equipment.
“I know some of our equipment came here when we moved here in April of ’92 and we’re still using those same beds, we’re still using some of that same equipment,” she said. “We deserve better for our patients – not just us – it’s our patients.”
Although physicians’ pay was not a topic of discussion at the rally, employee pay and appropriate raises were brought up.
“What I worry about going forward is not myself, not the physicians,” Dr. Prad George told the crowd of about 100 people who had gathered for the rally. “What I worry about is our staff – our nurses, our techs, people in the cafeteria.”
Community support for a sale snowballed after news broke of a proposed sale with many expressing discontent with CHS.
City Councilman Dr. John Crawford was among the first to publicly endorse a sale. He is a part of an independent physician group that practices at all of the regional hospitals but not financially part of the proposed buyout.
At a press conference last Friday, he called CHS a “failing system” and said a buyout would ensure that dollars generated locally would stay in the community.
A group of Lutheran medical staff met last May 18 night to discuss the proposed buyout and unanimously passed a resolution in support of the proposal.
The board of directors for St. Joseph Hospital also met that same night and passed a unanimous vote of no confidence for the ownership and control by CHS over the hospital and Lutheran Health Network.
Statements in support of a sale from state legislators and Congressman Jim Banks followed before CHS shut the door on a possible negotiation.
In response to the May 22 announcement, Barranda indicated that discontent with CHS remains.
“I took part in the St. Joseph Hospital vote and resolution that indicated that we have no confidence in CHS and the board was unanimous in that opinion,” he said. “Nothing has changed. The statement didn’t seem to alleviate those issues, so I will continue to be an advocate for St. Joseph Hospital and its importance to this community and right now it’s our position that we don’t have confidence in CHS.”
It’s unclear how Lutheran Health Network will move forward after so many public displays of discontent with CHS. However, the medical staff repeatedly expressed its support of the network’s CEO Brian Bauer. At the rally Saturday, Dr. James Cameron, president of Lutheran’s medical staff, told the crowd that Bauer was unable to be there but that he supported them.
An attempt to reach Bauer for comment on this story was directed to CHS.