Shh! VHS has another bid, don't tell anyone!

What maybe the most important news about Valley Health System (VHS) was not mentioned at Monday evening’s meeting. In a Nov. 19 letter, Prime Healthcare Services Foundation has submitted an offer to purchase substantially all of VHS’s assets.

In his letter to VHS Chairman, Dr. William Cherry, Michael Sarrao, secretary and treasurer of the Foundation, describes the offer as “… a structure which is similar in many respects to the proposal submitted by Physicians for Healthy Hospitals (PHH) … there are several important differences which make [the Foundation’s] offer far superior to PHH’s proposal for the District, its residents, and its creditors.”

Not only was the new proposal omitted from the agenda, which was prepared on Nov. 20, none of the directors urged consideration of the offer, refuted its value or even mentioned its existence during their individual comments.

VHS’s legal counsel, John Marshall said the letter arrived too late to be printed in the agenda documentation. In addition, he linked the offer to the pending litigation to explain why the board would not discuss it in open session.

“…[I]t was not appropriate to discuss this in open session. While the pending litigation was properly agendized and discussed in Executive Closed Session, the specific terms of Prime's proposal were not discussed,” he said in an e-mail. “In addition, VHS is contractually bound by the terms of the Asset Sale Agreement with PHH approved by the Board in September and which is the subject of the December 15 election. Thus, VHS would be in breach of the agreement with PHH if it entered into negotiations with another party at this time.”

Sarrao also reported that the State Superior court had ordered VHS to release material regarding the sale. VHS had withheld this information (such as their consultant’s(the Piera Group) report on PHH) as privileged information.

Subsequently, Marshall said VHS is trying to overturn this ruling with respect to the evaluation materials, but has provided Prime with more than 12,000 pages of information — just what PHH requested and received.

Sarrao claims, “[Dr. Kali] Chaudhuri has an ownership interest in PHH and is the managing member of the Physicians for Healthy Hospitals, LLC, the sole shareholder of PHH. We suspect (based on, among other things, the efforts by VHS to shield these reports from disclosure by trying to create a ‘privilege’) the Peira Group reports may include a much more information about the process or lack thereof employed by VHS and PHH.”

Since the board had no new business for action, most the meeting was occupied with a dismal financial report from Interim Chief Financial Officer, Michael Bernstein, who is leaving VHS within weeks.

VHS + Lawyers + Doctors = Ka-Ching!

As the Emcee sang in "Cabaret",
"Money makes the world go around, It makes the world go 'round.
A mark, a yen, a buck, or a pound"

The federal judge overseeing Valley Health System’s (VHS) bankruptcy petition has granted a special hearing that could result in a challenge of the agreement to sell virtually the entire hospital district to local physicians.

On Tuesday, Oct. 13, the Los Angeles law firm of Latham and Watkins, on behalf of several clients, including save Hemet Valley Hospital and Prime Healthcare Services and three local residents, requested bankruptcy Judge Peter Carroll to lift the a stay to permit the pursuit of state court litigation.
The plaintiffs are challenging the legality of the agreement between VHS and Physicians for a Healthy Hosptial (PHH).

They lodge three principal complaints. First, the challengers argue that VHS was required to notify and to work with the Riverside County Local Area Formation Commission if it plans to divest most or all of its services.

Secondly, “Save Hemet Valley Hospitals” claims that the VHS board has so many connections with Dr. Kali P. Chaudhuri, a Hemet physician and healthcare businessman, its decisions were tantamount to insiders’ actions rather than representatives of district’s constituents.

“The board members’ approval of the sale of VHS to a Chaudhuri entity — while they are employed or receiving substantial financial benefits from Chaudhuri’s other interests — is a patent conflict of interest,” they alleged.

The third major objection focuses on the boards sudden June decision to “explore” a sale and the lapse of only 30 days until it conferred an exclusive negotiating pact with PHH.

VHS’s legal counsel, John Marshall says, “Valley Health System will oppose the Motion.”

The sales agreement between VHS and PHH would provide VHS with about $160 million if you count $55 million of alleged claims from PHH members. Otherwise, PHH needs about $50- $60 million cash to close the deal, borrow some and will then have possession of about $38 million of VHS cash and receivables.

The owner of Prime Healthcare is another physician, turned healthcare entrepreneur, Prem Reddy.

The hearing will be 9:30 a.m., Monday, Nov. 2 at the Federal Bankruptcy Courthouse in Riverside.

Heading to some sports' photo ops and interview in Hemet. More tomorrow, as “the Scalpel twists”.

VHS for sale again

Almost two years after agreeing to sell the Valley Health System (VHS), Tuesday night its board of directors voted to negotiate confidentially and exclusively the sale of the both Hemet Valley (HVMC) and Menifee Valley (MVMC) medical centers with a group of local physicians.

The board ignored representatives of two other private groups interested in exploring bids for the system and the comments of many citizens recommending an open bidding process.

“Our charge is to the community not necessarily to [obtain] the highest deal,” replied Director Vinay Rao. “It is not whoever can give the most money, important part of the community are the physicians.”

In exchange to taking hospitals off the market, PHH will put $1 million in an escrow account. If a sale is consummated the money will become part of the purchase price. VHS does not receive any money for closing its eyes and ears to other potential buyers over the next 90 days.

Apparently some negotiations have already occurred as both VHS chair Dr. William Cherry and other directors said that the Physicians for a Healthy Hospital (PHH) was willing to bring a “top-tier management team”. Cherry later said this would be a firm with a national reputation such as Catholic Charities West, UCLA or Loma Linda.

Cherry did confirm that the Board’s other sale criteria would eventually be shared with the public, but only after the negotiation process had progressed further. While new Director Madaliene Dreier asserted “transparency” would be more than a “buzz word”, none of the directors volunteered to provide as much information as they have already given PHH.

During the public comment period, both Michael J. Sarrao, vice president and general counsel for Prime Healthcare Management, Inc., and Bob DeGour, executive vice president and general manager of ADR Associates, both said separately their firms would be interested in submitting a bid for part of all of the VHS.

[more will be in the print issue version]