Wednesday, October 7, 2009

VHS sale set for December vote

The Valley Health System board of directors approved the sale of the hospital district to the local physicians group — Physicians for Healthy Hospitals (PHH).

A specific price was not used during the meeting, but it is in the range of $114 to $118 million.

District voters, including Idyllwild residents, will cast their ballots in favor or against the sale on Dec. 15. The Registrar of Voters announced the election day yesterday.

Despite the urging of more than a dozen doctors for a unanimous vote in support of the sale, Director Robert O’Donnell was lone dissenter on the board that approved the action 6-1.

O’Donnell’s reasons were simple. First, he does not like the idea that if the voters reject the offer, PPH still gets to purchase Menifee Valley Medical Center (MVMC) for $29 million. Secondly, PHH promised but has yet to reveal a business plan, which demonstrates their ability to turn the hospital money sponge-like operations into a clean green profitable machine.

O’Donnell is the only person willing to publicly express a desire to review PHH’s business plan before blessing the deal, but others have expressed similar sentiments. Rob Davis, Hemet attorney who represents one of VHS’s numerous creditors, said his clients and other secured creditors expect to receive cash if the sale actually closes. However, the unsecured creditors committee has apparently requested more information from PHH, including the confidential or unrevealed business plan.

The doctors are paying VHS’ long term debt ($44.7 million), paying VHS’s pre-petition (pre-bankruptcy filing) unsecured creditors ($21 million), assuming “substantial” post-petition debt ($31 million estimate), assuming the $8.4 million owed to Select Healthcare, paying insurance premiums for future malpractice coverage ($4.1 million), giving the VHS remnant $400,000 per year for five years ($2 million), assuming annual and sick leave obligations to current staff ($6.0 million) and relief from contract breach claims levied by PHH “affiliates ($55 million).

Excluding the last item, which does not have a specific verified value, the other payments total $117.2 million. In return, PPH receives real assets, the two hospitals, the Health Center and other real estate appraised at $76 million and cash and accounts receivable of about $38 million.

Many doctors spoke in favor of the sale and PHH’s commitment to higher quality healthcare in the valley. None described how the physicians will find the capital to pay the $80 million and still have money to invest in improving facilities or expanding services.

The agreement requires PHH to maintain “core services” for five years. Basic emergency services are an example of a core service.

One of the non-physicians speaking in favor the transaction was John Petty, Riverside County 3rd District Planning commissioner. After the meeting, he explained his thoughts on why the hospital finances will improve.

“The doctors now have skin in the game. It’s pride of ownership,” he replied. He believes the Hemet Hospital reputation has been severely damaged through the recent referenda votes and now doctors have the incentive to change that reputation.

Summarizing the public’s choice in December, Director Tom Wilson said, “The bottom line when you entertain the idea to sell these facilities is they’re not just bricks and mortar. These are people, lives and safety.”

None of the sale's details were available Tuesday night. VHS counsel, John Marshall said the information including the final agreement will be posted on the district's Web site, However this will not occur in time to review the paperwork and still submit a comment to the county Registrar of Voter's office by 6 p.m., Thursday, Oct. 8. This is when arguments for or against the transaction must be filed.

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