VHS terms with PHH

Last night, the Valley Health System (VHS) directors approved a tentative agreement with the local physicians group — Physicians for Healthy Hospitals (PHH) — for the purchase of the hospital district.

A final definitive agreement is not ready for approval, but the physicians and hospital directors were getting nervous about the timing of a necessary voter approval and the approaching December and January holidays, according to VHS counsel John Marshall.

Consequently, the board adopted a memorandum of understanding with PHH that outlines the more general or basic terms and asked the county Registrar of Voters to schedule a polling place election or a mail-in ballot election or some combination of the two. The election would occur on Tuesday, Dec. 15.

The doctors are willing to pay the existing bond debt ($42.5 million), provide $21 million for unsecured creditors, assume post-petition (means debt incurred after bankruptcy was file in December 2007) of $25 to $30 million, pay a $8.4 million not to Select Healthcare and relief on other claims amounting to $50 million, eventually this might be reduced substantially.

In aggregate, PHH says it is willing to ante up $156 million for the system. VHS would sell all of its assets (with a few minor exceptions such as a small limited trust account).

In 2007, Select Healthcare’s $135 million offer for the whole district, including Moreno Valley Medical Hospital, was rejected at the polls.

The board voted 6-1 to accept the terms and request the registrar to establish an election if the directors finally accept and approve a sales agreement.

Both Board President Dr. William Cherry and Marshall indicated that the final agreement and related documents will be available in several weeks. But Marshall warned that the sheer volume of paper and number of lawyers involved will slow the process although establishing the election day will be a strong motivator.

The sole dissenter was Director Robert O’Donnell. He was disappointed that PHH did not present a business plan to demonstrate how it will generate additional revenue to pay its own debt.

VHS’s inability to create sufficient profits to pay debt and cover current expenses has been a major criticism of recent management

When asked how the doctors’ group could accomplish this task, Director Glen Holmes, chair of the Ad Hoc committee that has negotiated for the board, asked to discuss it on Thursday.

“A lot of the hospital’s deficit is the cost of bankruptcy. That’s about $300,000 per month,” replied Dr. Alex Denes, PHH spokesman. “That will disappear because we’ll be out of bankruptcy.”

He also said the doctors plan to re-established the healthcare contracts with local groups that the former management team had canceled. He also believes that patients will return to VHS facilities because the doctors can improve the image of the hospitals.

“Nearly 50 percent of residents were seeking healthcare outside the hospital district,” he noted.

If the voters reject this offer, as they did two years ago, an "Alternative Transaction" will be effective. PHH can purchase Menifee Valley Medical Center for $29 mllion. Apparently, some VHS officials have concern about this possibility since one whole slide of Marshall's presentation addressed "Concerns abou the Alternaive Transaction", such as the district will still have one hospital — Hemet — and substantial debt.

For those still excited about this transaction and healthcare finances, go to JP's blog for additional thoughts and comments.