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For-Profit Empire 

Judy Cole had one of those "ah-ha" moments recently when she walked into the Community Health Systems (CHS) hospital in Easton, Penn. "It was a snapshot of what we could be in the future," recalls the secretary of the board of Spokane's Empire Health Services (EHS), which operates Deaconess and Valley Hospitals.

Cole and her fellow board members were considering a partnership with the company, based in Brentwood, Tenn., and they were visiting a few of its 80 hospitals.

"I was so impressed by their commitment to providing quality care and to their employees," says Cole. "The doctors and nurses had such pride and dedication to their work. The culture there was like what we have here. And it's a hospital that's run by a local community board, similar to ours."

That trip to Easton and site visits to the facilities of other EHS suitors convinced Empire board members to entrust the company's future to Community, one of the nation's largest for-profit hospital operators. Last week they signed a "non-binding letter of intent," agreeing to sell Empire's assets to CHS. The sale price hasn't been disclosed; the transaction won't be finished until both sides do their final "due diligence" and the state Department of Health and the Attorney General's office approve the deal.

Empire has been entertaining offers for several months, after its board determined the company doesn't have the capital it needs to improve its infrastructure. At a community forum this spring Empire officials estimated they need to raise $100 million or more to renovate and/or replace Deaconess, to upgrade their facilities' computer and medical technologies and to accomplish the company's "Big Hairy Audacious Goal": by 2015, to be the top-rated hospital in the nation for patient safety, and employee and physician satisfaction. Cole says Community is big enough that it can help Empire borrow the money it needs.

A CHS spokeswoman says the company doesn't comment on non-binding agreements "and the EHS transaction is in its very earliest stages at this point." But a statement from the CHS Website shows why Empire officials would be interested: "With the belief that community hospitals often suffer from a lack of capital and have difficulty recruiting physicians and retaining high levels of management expertise, the company has assisted local hospitals in meeting these challenges and has proven itself to be an established leader in this industry segment."

"CHS has owned the hospital in Easton for five years," says Cole, "and in that time, they've met or exceeded the local goal for capital improvements there."

That's music to the ears of Empire officials.

"This is not a horror story," insists EHS Board President Ron McKay. He says Empire has conducted its search, not with a sense of desperation, but as a savvy shopper. "We drove the criteria for this. We decided the qualities we were looking for in a partner."

The company has markedly improved its financial position, going from an estimated $35 million deficit in 2004 to a $5.3 million profit last year. Empire is also a partner with its major competitor, Providence Health Services (owner of Sacred Heart Medical Center and Holy Family Hospital), in operating Inland Northwest Health Services, which includes the MedStar air ambulance system, St. Luke's Rehabilitation Hospital and a medical IT system that is the envy of health companies around the country.

McKay says Empire's stabilized position has made it a popular target since the company signaled its intentions to find a partner/buyer, drawing inquiries from about 20 companies. He says that number was quickly whittled to four or five, including one nonprofit organization. "We were looking for nonprofits, but they could not play," says McKay. "We got a strong dose of reality in our search. The reality, for us and for other small systems, is that to survive you have to be big and efficient. You have to maximize your strengths and minimize your weaknesses. You have to take advantage of economies of scale."

From Community's perspective, spokeswoman Rosemary Plorin says, "Empire Health Systems is an exciting opportunity for CHS and we look forward to learning more about the hospital and the community in the weeks and months ahead."

During that time, CHS financial people will be reviewing Empire's books and ironing out unresolved parts of the agreement. McKay expects the process will take several weeks. Once that work is done and CHS officials are satisfied with their answers, the transaction (for a "substantial" amount, says McKay) will be finished, subject to state approval. McKay says Empire will use the money from the sale to pay off debt and the rest will fund a new foundation, "independent from CHS" and run by a local board of directors. How the money in that foundation will be spent hasn't yet been determined, says Judy Cole.

Empire officials say the agreement with CHS will mean few, if any, changes for EHS employees. "It is expected that the hospital names will stay the same and patients will be treated by the same caring and talented employees and medical staff they know and trust," according to a fact sheet distributed by EHS about the agreement. "EHS and CHS will work together to offer all active employees in good standing employment at their current rate of pay and seniority."

That, no doubt, is meant to assuage the fears of employees like Patti Parra, a registered nurse on Deaconess' orthopedic neurology floor who told The Inlander in April, "We're concerned about whether we'll still have jobs" in a for-profit Empire. "Will we retain our seniority, our sick time, our vacation time? And would we have to take a pay cut? We're just getting back to where we were four years ago," when employees agreed to cut their pay by 9 percent to help keep the company solvent.

Parra and other employees also worry that moving the Empire hospitals to for-profit status would change the way Deaconess and Valley handle charity cases. Empire officials say that was a main negotiating point. Their fact sheet states: "The letter of intent specifies that CHS will adopt EHS' charity care policies, or substantially similar charity care policies, and will participate in community-based health programs."

One change that would certainly come if CHS buys Empire is that Empire, with its new for-profit status, would be required to pay the property taxes it is now exempt from paying. EHS officials say they haven't yet calculated how much that tax bill would be.

This summer Judy Cole, Ron McKay and their fellow board members will work to sell the agreement with CHS to the community. Their message will be welcomed by some and greeted with skepticism or even hostility by others.

"It's uncomfortable not knowing where we're headed," said Barb Davis, a cardiovascular technician who has worked more than 19 years at Valley Hospital, in April. "A number of the people here [at Valley] have seen the hospital change hands several times and they say it's always been a good thing. So maybe it'll turn out all right."

Some believe Empire should continue as a not-for-profit company, but McKay says, given today's marketplace, that's not an option. "This isn't about being for-profit or not-for-profit," he says. "It's about producing an environment where we maximize patient safety and quality care and the best environment for our employees."

CHS IN THE USA

Community Health Systems (CHS) runs 80 hospitals in 23 states. It bills itself as "the nation's leading operator of general acute care hospitals in non-urban communities." CHS has one hospital in a major metropolitan area (Philadelphia), but prefers to operate in small- to medium-sized cities like Evanston, Wyo., Ponca City, Okla. and Fort Payne, Ala. "Most of these hospitals are located in growing hometown communities with populations ranging from 20,000 to 400,000," according to the company's Website. Its facilities are located mostly in the Midwest, Southwest and deep South.

In addition to its interest in Empire, CHS is in the process of buying Plano, Texas-based Triad Hospitals for about $5 billion, as well as assuming $1.7 billion of Triad's debt; Triad's board approved the sale last week. Triad operates 54 hospitals, also in small- and medium-sized towns and cities. (Source: Community Health Systems website)

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