Haywood hospital leaders vote ‘yes’ to Duke LifePoint sale amid outpouring of public support
A parade of community leaders, doctors, nurses and hospital supporters voiced overwhelming support for the sale of Haywood Regional Medical Center to Duke LifePoint during a public hearing on Nov. 12.
“We really didn’t expect this kind of outpouring. We think we are on the road to making the right decision. It looks like we have support at least in this room,” Frank Powers, chairman of the Haywood Regional hospital board of trustees, told an audience of nearly 250 people.
A universal message emerged among the two dozen who spoke at the microphone — selling the hospital is the only way to save it.
“It is evident that we can’t sustain the hospital under the present system. That is what is at stake,” said Wallace Leatherwood, a Haywood resident.
Selling the hospital is “a realistic and desirable solution to our present hospital crisis,” said Dick Maples, another resident who spoke at the hearing.
“It has been pointed out so clearly tonight,” he said. “Without a merger with a financially sound entity we are faced with the prospect of losing our hospital.”
Haywood Regional has been teetering on the edge of a financial cliff the past several years. It’s lost money or barely broken even.
This year, however, it made almost $5 million — but given the annual budget of $110 million such a small profit margin is barely above the “survival threshold” and no cause for celebration, according to Jeff Summer, a strategic hospital analyst with Stroudwater Associates consulting firm.
“MedWest-Haywood is undercapitalized and operating with very little margin for error,” Summer said. “You are entering a period of great uncertainty and upheaval with no reserves. How would you pay suppliers and meet payroll? Those things are at critical levels for Haywood Regional Medical Center.”
Powers said called the sale to Duke LifePoint a “generational move” for the hospital.
“For the first time we will be on sound financial footing and that will solve our problem,” said Powers, a retired financial executive at Smith Barney. “We do have the best doctors. There is no reason why we can’t succeed. All we need is the money — and the expertise — of Duke LifePoint.”
Hospitals nationwide are struggling, with 5 percent predicted to close by 2020, according to a presentation by Duke LifePoint officials.
But simply making sure Haywood sticks around isn’t the goal.
“We want to have a plan to make sure your medical community is here for the long run and not just here but thriving,” said Jeff Seraphine, president of Duke LifePoint’s eastern division.
It’s a similar business model to the one LifePoint employs at the other 58 community hospitals it owns across 20 states: build up the footprint to capture market share currently being lost to bigger, urban hospitals nearby.
“Our sole motivation is to expand service lines close to home and keep care local that needs to be done locally,” said David Dill, LifePoint’s chief operating officer.
The high-caliber doctors and robust, well-rounded line of medical services in Haywood County is critically important to the community, according to several speakers.
Diane Phelps said the large population of baby boomers in Haywood County value the quality of the doctors and the hospital.
It’s also a top imperative for people moving here, added Brian Cagle, president of the Haywood County Board of Realtors.
“As Realtors we spend time with thousands of people who are considering moving to this area every year. As you might imagine, they want to know how our health care system is,” said Cagle, managing broker for the Waynesville branch of the Beverly-Hanks real estate firm.
Although 250 people came to the public hearing, at least half appeared to have direct ties to the hospital industry.
Along with the hospital’s top brass and many rank-and-file hospital workers, there were at least two dozen Haywood doctors, several hospital volunteers, the board of the hospital foundation, and Haywood County commissioners — not to mention a corporate team from Duke LifePoint and hospital consultants who helped guide the process of putting the hospital on the market.
Even Mission Hospital officials from Asheville and Park Ridge Hospital officials from Hendersonville came to witness how the evening would play out.
A unanimous vote
The Haywood Regional Medical Center board of directors voted unanimously following the public hearing to proceed with the sale of the hospital to Duke LifePoint Healthcare system.
“What the board has done hopefully will be able to position us for a long and healthy future,” said Dr. Al Mina, a surgeon who also serves on the Haywood Regional Medical Center board.
The hospital and Duke LifePoint will now enter a due diligence period. A final deal should be in place by spring.
Duke LifePoint has offered $26.2 million for Haywood Regional Medical Center and pledged a capital investment of $36 million in hospital facilities, equipment, technology, staff training and physician recruitment over the first eight years.
Duke LifePoint is also buying WestCare, which includes Harris Regional Hospital in Sylva and Swain County Medical Center. The sale price for WestCare has not been disclosed.
The sale of the hospitals will include all their related assets: urgent care clinics in Canton, Waynesville and Sylva; medical complexes under the hospitals’ names; doctor’s practices owned by the hospitals; and the Haywood Regional Health and Fitness Center.
Several doctors spoke in favor of the sale to Duke LifePoint at last week’s hearing. They said they have grown weary of up the uphill battles in recent years and are anxious to finally put them in the rearview mirror.
Since 2005, there has been some sort of drama playing out — clashes between doctors and the former heavy-handed CEO, clashes with Mission Hospital in Asheville, clashes with the Harris side of MedWest, and, of course, the ultimate clash with federal inspectors who yanked the hospital’s ability to be reimbursed by Medicare and other insurance companies.
There have been other tribulations even before that. Haywood Regional saw an exodus of its orthopedic doctors, an exodus of its anesthesiologists, and the wholesale ousting of emergency room doctors after they dared speak up against the former CEO.
And there have been layoffs — three rounds of them in a five-year span
Security and stability will be liberating, despite the hospital being sold.
“We are ready to move forward and put the trials and tribulations behind us so we can focus once again on patient care and not politics,” said Dr. Shannon Hunter of WNC Ear, Nose and Throat who served as chief of staff during one of the hospital’s rocky political climates.
The hospital’s decertification created both fear and anger among staff, and those emotions have lingered, said Diane Phelps, a nurse.
“In the last few months I’ve had hope we are going to turn around and be even better than what we are today,” said Phelps.
After the public hearing, Dr. Chris Wenzel reflected on the changes he’s seen in the past decade compared to his dad’s career as a doctor in Haywood County.
“During his 30 years, nothing ever changed,” Wenzel said.
Dr. Henry Nathan, a gastroenterologist and hospital board member, echoed the comments made by the public during the hearing.
“I don’t think we had a choice. We do lose some control,” Nathan said. But, “Today, the county needs the hospital to be safe and secure and that requires somebody to come in and rescue it.”
An irrevocable decision
Until recently, the thought of selling the independent, locally owned and locally operated hospital would have been unpalatable to the community.
Four years ago, Haywood Regional tried to shore up its financial footing by forging a partnership with neighboring WestCare under the new banner of MedWest and a management agreement with Carolinas HealthCare out of Charlotte.
The pseudo merger allowed WestCare and Haywood to retain an element of autonomy.
“The key at that point in time that I heard the most from the public was, ‘We want to retain local control,’” said Kirk Kirkpatrick, an attorney on the hospital board and a county commissioner.
Since then, things have changed.
“It has become a lot more difficult to operate a hospital under those terms and conditions,” Kirkpatrick said.
In other words, the hospitals couldn’t reap the financial benefits of belonging to a larger system but also remain independent. Only 22 out of 120 hospitals in North Carolina are still stand-alone hospitals.
“What we are seeing is one hospital becomes three hospitals and three hospitals become 60 hospitals. I’m afraid we will eventually see 60 hospitals become 200 hospitals,” said Dr. Al Mina, a surgeon who also sits on the hospital board.
A couple of speakers questioned why the public should have faith this time, when MedWest in hindsight was a failed experiment.
“We have done this dance before,” Vince Stringfellow said to the hospital board. “Tell me if you learned anything from this merger and what process do you have in place to keep us from having to go through this every four or five years?”
Haywood Regional won’t be going through this again because, simply put, the sale to Duke LifePoint can’t be undone.
“It is a final decision,” Powers said. “The decision we are going to make tonight is going to affect us for decades to come.”
When Haywood Regional hospital officials began shopping for buyers in earnest last May, they stopped short of saying the hospital was up for sale.
Instead, they called it an “alignment with a capital partner.”
But reading between the lines, an outright sale was the only move that would actually realize the cash infusion the hospital wanted and needed.
Some speakers at the hearing, however, voiced support for the “partnership” or “merger” with Duke LifePoint, prompting one hospital board member to set the record straight.
“It is an acquisition, not just a merger. Let’s make sure everybody understands that,” Norm Yearick, a hospital board member, told the audience at the public hearing.
‘A very tricky walk’
The trio of hospitals that forged the MedWest alliance in 2010 contracted with Carolinas HealthCare System based in Charlotte to oversee and manage them.
MedWest has paid Carolinas annually for its management services. But Carolinas has been criticized and blamed by some for missing the mark.
“Let’s get the right one this time,” Harley Caldwell, a retired Haywood resident, said at the public hearing last week.
Hospital board members defended Carolinas, however. They were the right partner at the time, Kirkpatrick said. Haywood Regional was able to remain independent and keep its seat at the decision-making table — which the community wanted — yet still benefit from the expertise of a major hospital company.
Besides, even if Haywood Regional had put itself up for sale back then, it wasn’t in a very good bargaining position.
The hospital had been forced to close in 2008 for more than four months, burning through nearly all its cash reserves in the process, after failing federal Medicare inspections.
“If you are a potential buyer looking for a hospital are you seriously going to look for a decertified hospital?” Powers asked. “Carolinas served one heck of a purpose for us because they made us valuable and made us last.”
In hindsight, Carolinas inadvertently acted as a bridge, but it had signed on to go the distance with MedWest as long as MedWest wanted them, according to John Young, the regional vice president for Carolinas.
“Our goal was to make MedWest a viable stand-alone system in a very competitive marketplace,” Young said. But instead, “Our role was to help get them into an attractive position, although we didn’t know it at the time.”
Young said he isn’t necessarily surprised by the turn of events.
“We knew that a hospital system without much access to capital was a very tricky walk and always along the edge,” Young said.
Carolinas will cooperate with MedWest to terminate the outstanding management contract, even though there are six years left on it, according to John Young, the regional vice president for Carolinas.
“We want to make this the best hand off ever,” Young said. Young said Carolinas would continue to manage and oversee the hospital up until the last day with the same attention and diligence as the first day it came in.
Young explained why Carolinas was supportive and understanding of MedWest’s decision to sever ties with Carolinas and put itself up for sale.
“What they needed is what our product isn’t,” Young said. “They needed capital.”
A close call
Haywood Regional Medical Center actually posted a profit of $4.9 million for the fiscal year ending Sept. 30. It was the biggest profit in more than seven years, which have been marked by losses or barely breaking even.
The bump this year was due partly to layoffs last fall, resulting in about $3 million in payroll savings, along with other cost-cutting measures.
“You can only do that so many times before you are cutting the bone. It is only a matter of time until you transform a community hospital into something that is less than that. So that is not a viable path,” said Jeff Summer, a strategic hospital analyst with Stroudwater Associates consulting firm.
Dr. Nathan agreed.
“You can’t survive by becoming more and more frugal,” Nathan said.
The finances of Haywood Regional Medical Center were so bad two years ago the hospital teetered on the brink of insolvency.
A concatenation of bad luck sucked millions from the hospital in 2011 — including a pricey transition to digital medical records, a broken generator, one lawsuit settlement over the wrongful firing of ER doctors and another over the ousting of the former CEO.
Meanwhile, the hospital was trying to grow its footprint. It bought up physician practices, opened a new urgent care, and contributed to a new outpatient surgery center and new hospice house on its campus. The growth seemed like a good strategy in the never-ending battle to get more patients, but it meant spending money upfront — more than the hospital really had at its disposal to spend.
Making matters worse, malfunctions in patient billing choked the incoming revenue stream at the same time.
Finances reached a dire point by early 2012. Haywood Regional lacked enough cash to make payroll had it not been rescued at the last minute by a $10 million line-of-credit from Carolinas Medical Center.
“Carolinas was a terrific help to us. They came to our rescue,” said Powers, the hospital board chairman. “If we didn’t have that $10 million loan we would have been bankrupt.”
The outstanding debt on that line of credit has remained at a stubborn $8.5 million. Cash from the sale to Duke LifePoint will wipe that debt off the books — something the hospital hasn’t been able to do on its own.
“We think we have found a partner, although I should say I think we have found an acquirer, with a lot of money to pay our debts off and from that point we will be healthy from now on,” Powers said.
Who is Duke LifePoint?
Several speakers at the public hearing said they are head-over-heels that Haywood Regional will soon be an affiliate of Duke University Medical Center.
“If the Duke name was to be associated with a medical facility in Haywood County, you can note it with pride,” said Bill King, a Haywood County resident who spoke at the public hearing.
Robert Fulbright said he was “thrilled when I saw that Duke would be buying the hospital.”
“To think our local hospital could be identified with Duke is amazing,” Fullbright said.
While the “Duke” in DukeLife Point indeed stands for Duke University Medical Center, Duke is only a minor player. Duke has a 3 percent stake in Duke LifePoint.
LifePoint is the managing partner, the one behind the joystick of daily operations, calling the shots on staffing and hiring, expansion priorities and long-range strategy.
Meanwhile, Duke brings clinical expertise, training and best practices to the table. That role shouldn’t be underestimated, however, said Dr. Harry Phillips, a cardiologist with Duke Heart Center and advocate for Duke LifePoint.
“Our quality program is designed to meet you where you are and help you build on that,” Phillips told the audience at the public hearing. “You have a lot to be proud of. We are very excited about the opportunity to be able to work with you on quality.”
Four of LifePoint’s 58 hospitals are operated under the relatively new Duke LifePoint brand. Two are in North Carolina, in small towns north of Durham, where Duke Medical Center is located. There could soon be a third, however. A deal is in the works to buy Rutherford Hospital.
“We came together around a shared vision that we could transform community health care,” Phillips said. “Haywood would fit perfectly at the table and be a valued partner in this process.”
Limited information was made available to the public about the sale to Duke LifePoint — and more importantly, what the hospital might look like once the keys are handed over to the for-profit hospital chain.
The public got its first glimpse of who Duke LifePoint is in a brief slide presentation by company representatives only moments before the public hearing, allowing little time to digest what they had learned before going straight into the hearing and hospital board vote.
News that Duke LifePoint was poised to buy Haywood Regional was announced just three weeks ago. Despite the hospital board going through the motions of a public hearing, the sale was essentially a fait accompli.
For WestCare — the partnership between the hospitals in Sylva and Bryson City — the sale to Duke LifePoint was literally a done deal by the time it was announced. WestCare trustees didn’t tell the public it planned to sell the hospitals to Duke LifePoint until after they had already voted to do so.
Hospital leaders have defended the tight-lipped process, citing the need to keep business strategy and negotiations confidential.
WestCare and Haywood Regional are negotiating their respective deals with Duke LifePoint individually. However, Duke LifePoint’s purchase offers are contingent on both sides agreeing.
The hospitals had been given new names under MedWest, but the branding effort didn’t go over very well. For decades, patients knew the hospitals as Harris Regional Hospital and Haywood Regional Medical Center. The public largely rejected the new nomenclature of MedWest-Haywood and MedWest-Harris.
It is now likely the hospitals’ former names will once again be their official name of record.
Duke LifePoint almost never changes the names of the hospitals it buys unless there is a serious perception or public image problem.