Triad talks hospital details

MAT-SU -- Dallas, Texas-based Triad Hospitals Inc. has plans for a joint venture with Valley Hospital Association (VHA) that would cost Triad up to $75 million to build a new hospital in the Valley. Triad's vice president of development Jeff Forshee has been visiting the Valley and -- although he's not exactly packing the meeting halls -- the deal has brought dozens of questions to Forshee, and to VHA management and board members. People want to know where the hospital will be built, who Triad is, and how they expect to get a return on $75 million.

Forshee said last week the new hospital would likely be within two miles of the intersection of the Parks and Glenn highways. The new hospital will be 75 beds to begin with and expandable to 150 beds to accommodate growth.

In one presentation, Forshee said hospitals ideally run at about 80 percent capacity. The number of hospital beds in the Valley will nearly double the day the new hospital opens, but Triad expects to capture enough market share so the hospital will have positive cash flow within two years, according to Forshee.

The profits will be split on a pro-rata basis with VHA. The exact split won't be known until VHA's current assets are evaluated, but Triad will be the majority owner in the joint venture company and VHA will control half of the board of directors.

"I don't know whether it will be 80/20, 75/25, or 60/40," Forshee told one audience, then explained that VHA's share of the earnings will be non-taxable and Triad's can be taxed. Forshee described the joint venture as a "pass-through" company.

After the first year, VHA has a "put option" which expires at the end of the fifth year. The put option allows the association to sell its part of the company to Triad for cash. Forshee said the put option came at VHA's request. VHA may also invest its earnings in the joint venture itself and increase its ownership by 10 percent, but may own no more than 50 percent of the new company.

Triad has a similar -- albeit 50/50 -- joint venture with a nonprofit in El Dorado, Ark. called SHARE Foundation. The jointly owned hospital is the Medical Center of South Arkansas (MCSA). It is run by a company created in 1996 by SHARE's nonprofit predecessor and Columbia/HCA. Triad was a spin-off from Columbia/HCA in May of 1999 and took the 50 percent ownership of MCSA with it.

"We feel extremely fortunate to have been spun off with [Triad]," Dr. Steve Smart said. Smart is an oral and maxilliofacial surgeon who also serves as a board member of the joint venture company that runs MCSA.

"I don't know much about where HCA is now but the new leadership at Triad has made us feel like we're the most important thing in this world. And they back that up with their presence, their interest and their money," Smart said.

Both SHARE foundation and Triad continue to reinvest in the property, according to Smart.

"Every cent of the profit has been poured back into El Dorado," Smart said. "There's nothing selfish about this company. I'm gonna sound like a dad-gummed salesman but I just can't say enough about Triad."

SHARE and Triad have a 50/50 split on MCSA's board of directors. Their board has continued to build equity in MCSA. Both Smart and Luther Lewis, MCSA's CEO, declined to say when they thought that situation would change.

"At some point down the road there will be distributions," Lewis said, "But I really don't think that's going to happen until we've made all of the improvements we think we need to make in order to care for the community. Keep in mind that we have had this partnership for six years and there has not been a distribution up to this point."

The major difference between the SHARE's deal and the VHA deal is that in 1996, Triad's predecessor purchased half of a hospital that was owned and operated by the nonprofit that preceded SHARE. SHARE was born on the same day as the joint venture company. Born with a silver spoon at that, the seed money for SHARE's principal was half the hospital's value in 1996.

Lewis wouldn't say how much Columbia/HCA paid into the original SHARE account. SHARE's current worth is no secret, the foundation reported assets (including its MCSA holdings) of $66 million to the IRS in 2000.

VHA on the other hand, would be allowed to start making money after the board of the joint venture hospital decides to distribute cash to its two owners. Although Forshee expects the new hospital in the Valley to be making a profit within two years, both Forshee and VHA officials have said that the joint venture board will likely re-invest earnings for three or more years in the same manner as the Arkansas hospital.

When asked how long it will take Triad to get its $75 million back, Forshee said he didn't know.

"It takes longer than 10 years," he said.