Sold: Duke LifePoint takes ownership of Haywood Regional and WestCare hospitals
When Janie Sinacore-Jaberg walked the halls of Haywood Regional Medical Center Friday morning, the congratulations were flowing and the balloons flying.
“Our staff is incredibly excited. There are just smiles everywhere. You could feel it. It was palpable when you walked in the hospital today,” said Sinacore-Jaberg, the CEO of Haywood Regional.
Meanwhile, Steve Heatherly was making rounds at Harris Regional Hospital on the other side of the Balsams in Jackson County. He paused as a nurse hollered to him from behind her workstation.
“Do you like your new job?” she shouted down the hall with a smile.
“Yeah, it’s great. How about you?” Heatherly answered.
She gave two thumbs up in return.
Heatherly, and the rest of the 860 employees at WestCare and 914 as of November at Haywood Regional are now part of LifePoint, a national for-profit hospital network with 65 hospitals.
The community hospitals in Haywood, Jackson and Swain counties officially switched hands at midnight last Thursday, finalizing a sale that’s been in the making for more than a year.
Until last week, Haywood and Harris were among the last independent, locally owned hospitals in the state.
The hospitals traded their autonomy for the promise of a better, stronger future — both financially and in their medical offerings. Without the underwriting of a major hospital network like LifePoint, the hospitals were sentenced to hobble along at the status-quo, or worse, see a slow, steady decline.
“We have opportunities to expand programs and services we could not invest in as a standalone hospital. We will see an investment in growth that will enable us to expand access to care and offer services we haven’t necessarily in the past,” Heatherly said.
And that’s critical as both hospitals try to reclaim market share that has slipped away to Asheville’s Mission Hospital in recent years.
“I do think the playing field will be more level than it has been,” Heatherly said, citing Duke LifePoint’s resources.
Haywood Regional Medical Center and WestCare had been hovering just above the breakeven line financially for several years. The quality of health care has remained strong, thanks to high-caliber doctors and nurses.
But the hospitals weren’t making enough to pay off their stubborn debt. And they didn’t have capital for major expansions, renovations and improvements.
That all changes with the sale to Duke LifePoint.
The sale wipes out all debt, loans and lines of credit — along with every penny of outstanding bills, invoices and accounts payable.
Whatever it takes to get the hospitals free and clear of debt will get backed out of the sale price. It will eat up a huge portion of the sale proceeds, in fact, with only a fraction left over to show for the sale when all is said and done.
LifePoint paid $26 million for Haywood Regional and $25 million for WestCare. But only a third or less — in the “few” million to “several” million range — will be left over by the time debt and bills are paid off.
But more important than the price tag, at least to hospital leaders and the medical community, is the large capital investment Duke LifePoint has pledged toward renovations, upgrades and improvements at the hospitals.
In fact, the sale price wasn’t even mentioned in press releases issued last Friday by WestCare and Haywood Regional. Both, however, mentioned the capital investment pledge in the first paragraph.
Duke LifePoint has promised $43 million in capital improvements at WestCare and $36 million for Haywood over the next eight years.
“That is all about making sure the hospital can realize its full potential in serving the community,” said Heatherly, citing not only new facilities but new equipment and new programs. “Some of the major capital projects we have T-ed up for a while we will really start digging into.”
Sinacore-Jaberg agreed that “access to capital” was a defining part of the sale.
“There are things we can do now that we couldn’t do then even though we had plans in our head and on paper,” she said.
Mark Clasby, chairman of the MedWest board that oversaw the joint venture of Haywood and WestCare, commended the medical community for staying the course despite the uncertainty of recent years.
“I want to express my deepest appreciation to the physicians, clinicians and hundreds of staff members serving Haywood and WestCare Health System who persevered through some difficult times, never failing to provide extraordinary care to all of the patients served by our facilities,” Clasby said.
From a human resources perspective, the transition went smoothly, which is to be expected given the dozens of hospital acquisitions in LifePoint’s portfolio.
“They know how to do it,” Sinacore-Jaberg said. “They knew what days we needed to do this and what days they needed to do that. I am very impressed with the organization.”
Sinacore-Jaberg said the most important aspect of the hospitals won’t be changing, however.
“This is not about the bricks and mortar of the hospital,” Sinacore-Jaberg said. “It is about the people inside. Regardless of what our name is, it is about the patients and the community.”
As far as new T-shirts and name badges, “They are being handed out today,” Sinacore-Jaberg said the morning after the sale.
A chat with WestCare’s CEO
WestCare CEO Steve Heatherly sat down with media last Friday morning, mere hours after completing the long-anticipated sale of Harris Regional Hospital and Swain Medical Center, known jointly as WestCare Health System.
The hour-long question-and-answer session with reporters talked about details of the sale that had been tightly held to date for fear of compromising the sale.
But with ownership of WestCare officially under Duke LifePoint, Heatherly spoke frankly about technical aspects of the sale and WestCare’s new future.
Will you be staying?
Heatherly will still be the CEO of WestCare and said he’ll stay as long as Duke LifePoint wants to keep him in that position.
Will the medical community, and doctors in particular, still enjoy the same level of input under Duke LifePoint ownership as they did under WestCare as a locally owned hospital?
“I agree that WestCare has tended to have a highly collaborative relationship with its medical staff, and I anticipate that will continue and it will take different forms as we go forward. I think Duke LifePoint’s philosophy about working with physicians and WestCare’s philosophy are congruent,” Heatherly said.
Why did the WestCare hospital board pick Duke LifePoint?
“The board went through a very thorough and thoughtful process. The decision came down to Duke LifePoint’s ability to work with community hospitals all across the country,” Heatherly said.
LifePoint, which now owns 65 hospitals nationwide, has a penchant for turning around semi-rural community hospitals. Its strategy has been the same almost everywhere: spend money and resources building the hospital up and in turn recapture local patients who had slowly drifted away to more urban hospitals.
“One reason the WestCare board selected Duke LifePoint is their ability to invest in local growth,” Heatherly said.
As WestCare tries to reclaim some of the market share lost to Mission in Asheville over the past several years, will the cooperative relationship with Mission become more competitive?
“I think that we view ourselves as having a good cooperative and collaborative relationship with Mission and suspect that will continue as we mutually care for patients,” Heatherly said. “We have always had a degree of a competitive relationship with Mission, and it hasn’t been unhealthy competition. I do think the playing field will be more level than it has been.”
What’s the sale price?
The sale price was $25 million, but a lot gets backed out of that number.
Money from the sale has to cover all debt, bills, accounts payable, invoices and contracts, making the actual proceeds far, far less than $25 million at the end of the day. It’s a lot like a homeowner having to pay off their outstanding mortgage when they sell their house before the new owner takes title.
Duke LifePoint stipulated it wants $1 million cash in the bank to start out with, so if it’s not there, that gets pulled out of the sale proceeds as well.
What’s leftover after all that?
WestCare already used $14 million of its sale proceeds to pay off its formal bank loans, which happened instantly when the sale went through.
There’s $11 million leftover, but that’s not the whole story. It will be another six years before we know the final answer to this question.
Why are the ultimate sale proceeds so variable, and why will it take so long to find out?
Money from the sale will be held in an escrow account to cover future wildcards.
For example, the money in escrow has to cover a host of eventualities that could crop up at some point in the future but that predate the sale to Duke LifePoint — like a lawsuit, or an error in a patient’s bill, or dispute over insurance coverage — and would have to be paid from the escrow account.
“That could change the number by some amount that some could perceive to be material,” Heatherly said, explaining why he wasn’t willing to make a guess.
By the way, WestCare also gets $1 million in sweetheart money from Haywood Regional, which Haywood promised WestCare at some point in the MedWest divorce negotiations. The deal led to MedWest dissolving, but the two ended up finding a new buyer together.
What happens to the money after all the liabilities finally expire?
Sale proceeds will remain in escrow for six years, a safe time period to assume the coast is clear on any past liabilities and obligations. But a portion could get released along the way, however, as benchmarks are passed.
“We believe dollars will flow in two to three stages,” Heatherly said.
The money left over when all’s said and done will go into a newly created nonprofit foundation.
What will the foundation do?
The foundation has not yet been established, so who will serve on it, its structure and its mission are not clear. But it will be related in some way to healthcare and wellness initiatives.
Unlike the former WestCare foundation, the new foundation can’t give money to the hospital or support it in any way now that it’s owned by LifePoint. IRS rules prevent charitable donations to a for-profit.
“The efforts of the foundation cannot go to directly benefit the hospital,” Heatherly said. “However, the foundation could have a broad focus on health and human services for the community.”
What about MedWest?
WestCare decided it wanted to sever the MedWest partnership with Haywood over two years ago. And it’s been in a holding pattern since then.
“Now it is really exciting to be on the precipice of developing local strategy and having the resources to execute it. That has been an obvious challenge in the past couple of years,” Heatherly said.
But with the same new owner, Haywood and WestCare haven’t exactly gone separate ways. Duke LifePoint has pledged to operate them like separate hospitals, with distinct markets and specific needs and a tailored approach for each — rather than cross-promoting or consolidating services.
“Duke LifePoint’s commitment to the WestCare board is that it will be operated to maximize its full potential as serving Jackson, Swain and Graham as its primary service area,” Heatherly said.
For example, WestCare previously shared a Chief Financial Officer with Haywood, but Heatherly now gets to hire his own CFO just for WestCare.
What happens to the WestCare board?
The WestCare board used to oversee hospital operations and control decision-making. Duke LifePoint now owns WestCare lock, stock and barrel, so the local board has no authority anymore. But a board will continue to exist.
“The board is advisory in nature as it relates to operations and finance. We still want to have local input going into major decisions of the organization,” Heatherly said.
The board — a combo of doctors and community members — will also provide formal oversight of physician credentials and healthcare regulatory compliance.
What capital projects are in the queue for the $43 million in capital investments pledged by Duke LifePoint?
First up is a new emergency room at Harris, a project that’s been on the drawing board for years but lacked funding. Another project is a complete remodel of the mother-baby wing of the hospital on the third floor, an extension of the recent $1 million renovation of the New Generations Family Birthing Center that focused on the labor and delivery suites.
Tying up loose ends with Haywood Regional’s CEO
The sale of Haywood Regional Medical Center to Duke LifePoint has been a highly public process, due to Haywood’s unique status as a public hospital authority.
County commissioners in Haywood had to approve the hospital sale, which required disclosures along the way about aspects of the sale, as well as numerous public hearings. As a result, details surrounding Haywood Regional’s sale have been widely reported already.
But Haywood CEO Janie Sinacore-Jaberg shared a few new details that have emerged over the course of the past week.
To read a past Q&A with more about Haywood’s sale, go to www.smokymountainnews.com and click on this story.
Will you be staying?
Sadly no. Sinacore-Jaberg is taking a job with Carolinas Health System as the vice-president of regional operations for the 32-hospital network.
Sinacore-Jaberg has technically been an employee of Carolinas Health System while at Haywood. MedWest contracted with Carolinas for management services, and Sinacore-Jaberg was their on-the-ground manager here.
She said it was a tough decision to follow Carolinas rather than stay on at Haywood with Duke LifePoint.
“My heart right here is at Haywood, and I don’t mean just Haywood Medical Center, but Haywood County, because of the people,” Sinacore-Jaberg said.
Sinacore-Jaberg kept her primary home outside Charleston when taking the job at Haywood two years ago, often commuting on weekends. The new job with Carolinas will allow her to spend more time with her family in Charleston.
Haywood was her fourth hospital management position in a dozen years, and she’d shepherded all of them through a sale, merger or acquisition of some sort.
Who will take your place?
Duke LifePoint has named Richard Grogan to serve as the interim CEO. He was most recently served as the interim CEO at Starr Regional Medical Center, a LifePoint hospital in Athens and Etowah, Tennessee, and has held various hospital administration jobs around the country over the past decade.
“He will keep the ship moving, and I am excited to work with him,” said Sinacore-Jaberg, who will overlap with him for two weeks.
What happens to sale proceeds?
The money left over after initial debt and loans are paid off will go into an escrow account to pay off invoices, bills and accounts payable predating the July 31 sale to Duke LifePoint.
Although the old hospital board will dissolve, a newly created entity called the Haywood Health Authority will be appointed by county commissioners to oversee the escrow account. “The old board or parts of the old board will continue for a wind down period of time yet to be determined,” said Frank Powers, who served on the former HRMC hospital board. “The main part of the wind down is to handle claims that may arise and pay bills that will no doubt be sent to us. Whoever is on it will no doubt provide periodic reports to the commissioners on the status of the wind down period.”
Whatever’s left in escrow will be turned over in six years. By then, the coast should be clear on unexpected liabilities that predate the sale to Duke LifePoint.