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Wednesday, 22 May 2013 00:00

Hospital for sale? All options on the table as MedWest hospitals contemplate future

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Financial challenges faced by rural hospitals show no sign of a turnaround, prompting MedWest hospital leaders to consider what was once a last resort.

MedWest hospitals are entertaining the idea of selling or merging with a larger hospital system that would bring a cash infusion to the table.

 

The 14-member MedWest board voted unanimously last week to “to explore alignment with a capital partner.”

A MedWest statement cautioned it is only in fact-finding mode, and that it will be several months before a decision, if any, is made.

“We are interested in learning. That’s why you do a deliberate thoughtful process,” said Mark Clasby, the chair of the MedWest board and Haywood County economic development director.

The hospitals in Haywood, Jackson and Swain counties joined together under the MedWest banner three years ago. The collaborative arrangement stops short of an actual merger, however.

At the same time, MedWest hired Carolinas Healthcare to serve as a hospital management company. But that arrangement likewise stops short of an actual merger.

Carolinas brought many assets to the table: management oversight, collective buying power, and health care industry know-how, given its vast network of 33 hospitals.

But it did not bring cash to the table, and cash is what the hospitals need now.

The only way to get cash realistically is to give up ownership of the hospital. Larger healthcare entities won’t inject capital into smaller hospitals simply in exchange for a management contract.

While management companies can get a bonus for their services if the hospital they oversee performs well, there’s no prospect for long-range returns on a capital investment, and thus no incentive to put up capital to improve the hospital’s long-range outlook.

Mission Hospital system in Asheville has put money and capital into many of the smaller hospitals that have merged with Mission in recent years, from Spruce Pine to Franklin to Brevard — but only under an outright merger or ownership stake.

MedWest has put out a call for any interested hospital system to submit a proposal. There will likely be plenty to pick from.

Neither the entities nor their offers will be shared publicly, unless one is chosen.

There are several guiding principles MedWest leaders will use to size up proposals. Some of those include:

• Secure the MedWest hospitals’ long-term stability and financial viability.

• Make needed investments in facilities, technology and personnel.

• Continue to develop quality medical staffs with strong ties to the community.

• Elevate and promote the quality of local healthcare services.

Exploring a merger or ownership transfer of MedWest follows a two-month strategic study of MedWest’s future outlook. The hospital consulting firm Stroudwater Associates was hired for $45,000 in part to help MedWest leaders analyze their business outlook and market position. 

The process comes at a time of uncertainty for the MedWest partnership as a whole. Last summer, the hospitals in Jackson and Swain counties formally declared that they want out of the MedWest partnership. 

But MedWest is presenting a united front as it seeks proposals from prospective “capital partners.”

“MedWest is going to go out and seek capital partners for the entire system. There needs to be a capital infusion into the entire system,” said Kirk Kirkpatrick, a Waynesville attorney, county commissioner and member of the MedWest-Haywood board.

The offers coming in would likely be better for the whole system than for the hospitals individually.

“Together we are stronger,” Clasby said.

But it is likely the proposals coming in could include a suite of options: a proposal for all of MedWest, as well as proposals for the component hospitals.

The call to dissolve MedWest originated within Jackson’s medical community, citing cultural differences with Haywood’s medical community, a perceived underdog status, fear that local health care services would be siphoned away by Haywood, and an eroding bottom line.

But to dissolve MedWest, at least some of the Haywood appointments to the MedWest board would have to agree — and Haywood may not be too eager to let Jackson and Swain hospitals out of the partnership.

Hospital leaders and physicians in Haywood have repeatedly said that the three hospitals are stronger as a team. But the hospitals have been hesitant to give up their autonomy and, as a result, resisted the idea of combining functions to save money. Thus, all of the financial benefits from the partnership have not been realized.

If the financial woes of the MedWest hospitals weren’t so glaring, the dissention within the system might subside. Or not. That will hinge on what the incoming proposals look like.

The health care landscape nationwide has been in a state of flux as hospitals everywhere face rising costs and shrinking payments. There has been a near constant shuffling of the deck as hospitals move in and out of mergers and acquisitions. Small, rural hospitals in particular have scurried to the gates of bigger ones, seeking a safe harbor from the financially trying times.

Clasby said the MedWest leaders will have to weigh the best course of action to ensure quality, community-driven health care is around for decades to come.

“We want our community hospitals to be strong for the future and continue to serve our patients,” Clasby said.

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