Dear Community Member,
Empire Health Services (EHS) has reached another milestone in the regulatory review process currently underway for the proposed sale of Deaconess and Valley Hospitals to subsidiaries of Community Health Systems (CHS). On Friday, April 18, 2008, CHS with the concurrence of EHS, submitted the requested supplemental information to the Washington Department of Health and we want to update you on the latest developments.
As a part of this filing, an amendment agreed to by CHS and EHS was submitted which changes two key aspects of the original Asset Purchase Agreement between EHS and the CHS subsidiaries. The amendment extends the termination date of the agreement to October 31, 2008 and it reduces the purchase price of the hospital system from $172 million to $156 million, which includes net working capital.
Other important aspects of the Asset Purchase Agreement, including several beneficial commitments for the Spokane community, remain the same:
o Commitment to invest at least $100 million over the next five years in facilities and technology improvements across the EHS system.
o With the guidance and endorsement of the EHS board, adoption of a charity care policy that is the similar to or more beneficial than EHS’ current policy.
o Commitment to hire all active EHS employees at the time of close, honoring their rate of pay and seniority level.
o Commitment to local leadership and guidance of the hospital, including a community board of directors, significant local physician involvement and leadership, and a management team based in Spokane.
The net proceeds from the sale will still go to fund an independent, community-run foundation at the time the sale closes. The $156 million purchase price would equate to approximately $84 million for the foundation.
The change in the purchase price is due to a number of factors, primarily:
o EHS’ declining financial performance in 2007, which impacted the overall financial value of the organization.
o The U.S. capital markets are substantially weakened as a result of the sub prime mortgage crisis and its ripple effects in the banking industry. This dynamic has caused a market-wide reduction in valuations of hospitals.
The EHS Board of Directors understands and accepts the reasons for the adjustment. It reflects the financial reality and current value of the system, while still providing the region with the opportunity to preserve our two-hospital system and enhance our vibrant health care sector. The new price is still well within the range of fair market value that was determined a year ago when EHS began examining its options and it remains very attractive in the current capital environment.
Earlier this year, EHS management implemented a performance improvement plan to improve the system’s financial situation, including operating expense and staff reductions. These actions, combined with increased patient volumes, stabilized and improved EHS’ first quarter financial performance. The Board is encouraged by this progress but also recognizes significant future investment in the system is critical to achieving the long-term health and growth.
The EHS Board would like to thank the many organizations who have written support letters throughout the process. These groups include the Spokane County Medical Society, Greater Spokane Incorporated, Washington State University Spokane, City of Spokane, Spokane City Council, Ronald McDonald House, Valley Hospital and Medical Center’s Medical Staff and the Deaconess Medical Staff & Executive Committee.
We will continue to update you with information as we reach milestones in the regulatory review process. We still anticipate the process to conclude by early fall. You can visit our web site at www.empirehealth.org for updates or email the Board directly at ehsboard@empirehealth.org with any questions you may have. You can also get updates on the regulatory process from DOH at www.doh.wa.gov/hsqa/fsl/CertNeed/Empire.htm.
Sincerely,
Ronald F. McKay
EHS Board Chairman
EHS Community Board Judy Cole, Avista Corp.
James J. Gerding, MD, Anesthesia Associates, P.S.
Anne Hirsch, Washington State University - Intercollegiate College of Nursing
Pierre P. Leimgruber, MD, FACC, Spokane Cardiology
Ronald F. McKay, Global Credit Union
Douglas Norquist, MD Northwest Orthopaedic Specialists
William H. (Bill) Payne, Avista Corp.
Michael A. Senske, Pearson Packaging
Perry A. (Mike) Taylor, Taylor Engineering
R. Ron Wells, Wells & Company