Hospital sale talks start

PALMER -- Last week the Valley Hospital Association board and management took a definitive step towards a corporate merger that would make building a new hospital a reality. In a meeting last Thursday night, the operating board voted unanimously to enter into talks with Triad Hospitals Inc. to establish a joint venture company. On Friday, hospital CEO George Larson was delivering the news to employees, and VHA announced the start of negotiations in a press release.

Under the proposed agreement, the two companies would form a joint venture company with VHA contributing all of its existing assets and Triad contributing approximately $75 million in cash to build a new hospital. Triad would own a majority of the joint venture, and VHA would maintain some board control and a minority ownership.

It's not clear how much of the joint venture the local non-profit will own. As the deal proceeds, a third party will determine how much VHA's current assets are worth, and the nonprofit's ownership share in the new company will be based on that. Hospital spokesperson Elizabeth Ripley said VHA officials expect VHA to be valued somewhere between $15 million and $25 million and that more than one third-party assessment will likely take place before the deal is through.

Ripley gave an example of how things might progress.

"If, for example, [VHA's value] turns out to be $25 million and Triad contributes $75 million to build a new hospital, then VHA would end up with 25 percent ownership of the joint venture," Ripley said, adding that the exact amount of Triad's investment is still a variable this early in the process.

Triad is a Dallas, Texas-based company traded on the New York Stock Exchange. The company owns and operates 48 hospitals and 14 surgery centers in 16 states.

"This partnership will benefit the entire community in so many ways," Larson said. "The new hospital will improve the economy of the area by adding jobs, attracting more physicians and specialists, and reducing the out-migration of health care services from the borough. It will become one of the largest tax paying entities in the borough. Health care services will be expanded to keep pace with population growth and access to these services will be improved through the central location. The new hospital will have no debt and will have the financial strength to compete effectively and to invest in the future."

VHA has been seeking a large capital partner to build a new hospital for the last two years. Local control over the future of the hospital has been an important issue for VHA board members as they explored options. The press release claims that Triad's offer will provide that. Under the plan, VHA will retain 50 percent of the board of directors seats on the new company, according to the release.

In the future, VHA board members will have to decide how to spend the profits from its share in the joint venture. As a non-profit, VHA could use the money to continue its work in health education, or give direct grants to specific areas of health care the board identifies.

"Our employees and community members made it very clear to us all along that they wanted local control," VHA operating board president Kathleen Kelly said. "Whether they were referring to policies such as abortion or to the actual business and operating decisions, our customers told us they wanted local representatives to have a voice in how our community hospital is run."

The release also said that Valley Hospital matched a profile that fit into Triad's business plan -- specifically, the hospital is in a rapidly growing area and has had difficulty keeping up with growth.

Triad Executive Vice President of Development and Management Daniel Moen said in the release that community involvement is also part of Triad's business strategy.

"We've found that by vesting community leaders in the governance of their local hospitals, these hospitals are more successful," Moen said. "We are looking forward to working with Valley Hospital administrators and community leaders in building an organization and a new hospital that will increase access to services and rely on community involvement to accomplish that."

State law requires the VHA general membership to vote on any asset transfer this large. Larson said the VHA bylaws mirror the state law and that 10 percent of the membership must vote for the election to be valid. The plan also needs to pass by a two-thirds majority. The vote should take place sometime in October, according to Larson.