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March 13, 2013

LifePoint promises open Fauquier Health merger

Video/Steve Wheat
LifePoint Chairman/CEO Bill Carpenter and Fauquier Health CEO Rodger Baker discuss the proposed merger Tuesday.
The thing that LifePoint gave us that others didn’t is an understanding of small-market hospitals. That, along with the need to get more efficient and their rankings on patient satisfaction and patient outcomes (solidified the choice).
— John McCarthy, Fauquier Health board member
Potential partners
> Fauquier Health

• What: Not-for-profit community health system

• Headquarters: Warrenton

• Founded: 1925

• Subsidiaries: Fauquier Hospital, 115-bed Rehabilitation and Nursing Center, Fauquier Wellness Center, Cancer Center at Lake Manassas*, The Villa at Suffield Meadows (assisted living), along with wound healing center, home care services, internal medicine practice, sleep center and pediatric rehabilitation center.

• Employees: 1,100

• Licensed beds: 97

• Physicans: 164

• 2011 revenue:
$141 million for hospital; $7.1 million for Fauquier Health Systems

• President/CEO: Rodger Baker

• Chairman: Marshall Doeller

• Website: http://www.fauquierhealth.org

* Joint venture with Prince William Health.



> LifePoint Hospitals


• What: For-profit hospital holding company

• Headquarters: Brentwood, Tenn.

• Founded: 1999

• Hospitals: 23 with almost 60 campuses in “non-urban” areas of 20 states.

• 5 Virginia hospitals: Danville, Galax, Martinsville, Richlands and Wytheville.

• Employees: 28,000

• Physicans: 3,000

• Annual revenue: $3.5 billion

• Chairman and CEO: William F. Carpenter III

• Website: http://lifepointhospitals.com
By .(JavaScript must be enabled to view this email address)
Editor
LifePoint Hospitals Inc. leaders learned from mistakes eight years ago in Danville, the chief executive of Fauquier Health’s proposed merger partner said Tuesday.

“The day LifePoint was introduced to the community was the day the transaction closed,” William F. Carpenter III said of the 2005 Danville Regional Medical Center merger. “So, when we were introduced, it was viewed as another take away (from the community) . . . . And we made some mistakes . . . . I’m not gonna run away from that.”

Simultaneously, plant closings hammered the economically-depressed Southside Virginia community, a hub of the rapidly-fading domestic textile and tobacco industries.

After merging with Tennessee-based LifePoint, the 350-bed Danville hospital experienced repeated leadership changes, staffing shortages, physician departures and a rash of community complaints. It temporarily lost accreditation.

The city council appointed a committee to address community concerns, which have subsided in recent years as the hospital’s staff has stabilized.

After the Danville experience, however, Mr. Carpenter and his management team agreed they’d never again consider acquiring a hospital in a “closed” process. The $3.5-billion-a-year company, whose stock trades on Nasdaq, has since completed nine acquisitions “very smoothly,” its chairman/CEO said during Tuesday’s visit to Warrenton.

Virginia law also changed in the wake of the Danville hospital merger. The 2008 General Assembly overwhelmingly passed legislation — drafted by Del. Danny Marshall (R-Danville) — that requires a public hearing six months before the sale of a non-profit hospital to a for-profit corporation.

Such a public hearing will take place this summer in Warrenton. The attorney general’s office must determine whether the merger represents the community’s best interest.

As part of the more open process, the boards of LifePoint and Fauquier Health have approved a memorandum of understanding to merge. Months of “due diligence” and getting acquainted will precede adoption of a definitive merger agreement, expected by September.

Mr. Carpenter, whose compensation totaled $7.7 million in 2011, made his second visit to Warrenton this week. The executive, who owns 1.3 percent of LifePoint’s stock, addressed physicians and employees at Fauquier Hospital. He and other LifePoint executives flew into Warrenton-Fauquier Airport at Midland on the company’s Hawker 750 jet.

By early afternoon, when he spent 37 minutes with local journalists, Mr. Carpenter had fallen about a half-hour behind on a tight schedule. He simply likes to talk with people, the soft-spoken 58-year-old said.

“They’re nervous,” Mr. Carpenter said just before a meeting with some of Fauquier Health’s 1,100 employees. “Change is hard.”

What did he plan to tell them in the meeting, closed to the press?

“I’ll tell them they’re all gonna be hired (if they pass background checks and drug screenings). . . . They will get their years of service and the same pay scale,” he replied. “We will be here on every shift, talking to every employee.

“As quickly as we can get employees feeling comfortable, taking away that anxiety, they can get back to taking care of patients.”

LifePoint paid $210 million for the Danville hospital in 2005.

Citing a confidentiality agreement, Mr. Carpenter and Fauquier Health officials, including CEO Rodger Baker, refused to say what LifePoint would pay for the 97-bed Warrenton hospital, its nursing home and related businesses.

But the total purchase — subject due diligence — logically could exceed $200 million. That would make it the largest business deal in Fauquier County history.

It also would create Fauquier’s third largest taxpayer, behind Dominion Power and a joint venture that owns a southern Fauquier power plant.

LifePoint would pay off Fauquier Health’s $90 million in debt, Mr. Baker said last week, when officials announced the potential merger.

Because of its non-profit, tax-free status, Fauquier Health’s real estate and equipment never have undergone a detailed assessment for county tax purposes, Commissioner of Revenue Ross D’Urso said.

A very basic estimate put the value at $66 million, excluding equipment, Mr. D’Urso said Tuesday. Fauquier Health has a 45-acre campus in Warrenton and the Suffield Villa assisted-living community north of town.

So, the “physical plant” value could approach $100 million.

Some $50 million to $100 million from the sale to LifePoint would endow a new healthcare foundation in Fauquier, according to sources familiar with the discussions.

In Danville, $200 million — most of the purchase price — went into such a foundation.

Putting so much cash into a foundation would compensate the community for decades of donations to the hospital and would provide significant tax advantages for LifePoint.

The foundation here would fund the Fauquier Free Clinic and other community health care that might not produce profits, such as mental health services, according to officials.

LifePoint also would help fund improvements in Fauquier, such as technology enhancements and construction of a 52,000-square-foot medical office building on Shirley Avenue. Fauquier Health last year won town council approval for construction of the building but held off after discussions with the potential merger partner got serious, Mr. Baker said last week.

Fauquier Health would have a minority share — possibly 20 percent — of a new limited liability corporation that will own the local hospital, the 112-bed nursing home and related properties as a for-profit LifePoint subsidiary.

LifePoint and Fauquier Health each would have three or four seats on the new LLC’s board under “shared governance.”

How would that work in the case of a disagreement?

“They’d have to reach agreement,” Mr. Carpenter said.

Each entity’s representatives would vote as a block. So it would be impossible to peel off a vote from one member of either entity’s representation to swing a decision.

How can LifePoint invest so much in Fauquier, keep the local staff, continue to provide charity care, share decision-making and satisfy its obligations to stockholders, which include large investment funds?

“A lot of this (results from) things we’ve been able to do in adding to the top line, increasing revenue to the hospital,” Mr. Carpenter said. “Scale is part of it.”

Founded in 1999 and headquartered in Brentwood, Tenn., LifePoint owns hospitals with 57 campuses in 20 states.

For example, a few years ago, LifePoint purchased 35 CT scanners “in a single transaction,” Mr. Carpenter said. “We’ll bring the strength of a hospital resource center . . . . We bring a legal department, a compliance department, a reimbursement department.”

Mr. Baker noted: “Sometimes, we’ve had to outsource or buy those services, at great expense.”

LifePoint typically funds hospital purchases “through cash flow,” without long-term debt, Mr. Carpenter added.

Fauquier Health officials consistently have cited the need to find economies of scale.

The proposed merger comes when Fauquier Hospital remains profitable. But, with changes in health care law and increasing consolidation among competitors, the future for a relatively-small, stand-alone hospital could grow difficult.

The 2014 opening of a new, 60-bed hospital at Haymarket — very close to many of Fauquier County’s most affluent residents — will intensify the competition.

Officials of that hospital already have begun recruiting Fauquier medical specialists, offering retainers for them to “take calls” at the emergency department, when it opens at Haymarket. That presumably would funnel business there for surgery, tests and other services as well.

“We want to make this hospital better, rather than send our community elsewhere for services,” Fauquier Health Chairman Marshall Doeller said last week.

Merging with LifePoint will give the local hospital access to capital and expertise to make that growth possible, Mr. Doeller said.

Fauquier Health officials conducted a very deliberate process, they said.

Potential merger discussions started four years ago, primarily with regional non-profit hospital companies, Mr. Baker said.

But, Fauquier Health never got close to a deal with any of those potential partners, which included Inova, said Warrenton Realtor Anne Hall, who served more than two decades on local hospital boards and committees.

“They had their way of doing things,” Mrs. Hall said. “If you did a joint venture with them, you did it their way.”

Under such a merger, Fauquier Hospital might have become “a small fish,” sending patients to larger institutions in Northern Virginia, she suggested.

But, last year local hospital officials restarted merger discussions, using Stroudwater Associates, with offices in Maine and Georgia, as its consultant.

Stroudwater sent requests for merger proposals to 30 hospital companies in this region and beyond.

Twenty replied with proposals. Starting last June, Fauquier Health officials whittled that number to about six finalists. By late fall, LifePoint emerged as the favorite.

“The thing that LifePoint gave us that others didn’t is an understanding of small-market hospitals,” said Fauquier Health board member John McCarthy, a Warrenton resident and Rappahannock County’s administrator. “That, along with the need to get more efficient and their rankings on patient satisfaction and patient outcomes” solidified the choice.

Fauquier officials had watched Loudoun and Prince William hospitals struggle before merging with non-profit corporations Inova and Novant, respectively, Mr. McCarthy said.

He and other Fauquier Health officials repeatedly said they wanted to bargain from a position of strength.

LifePoint’s CEO acknowledged that position Tuesday, noting the high quality of the completely renovated Warrenton hospital, the community’s desirable demographics and the high percentage of insured patients.

Those factors help make the proposed merger different from many his company has done with hospitals on shaky financial ground, with outdated buildings, Mr. Carpenter said.

“Actually, it’s OK in my mind,” said Mrs. Hall, no longer a board member. “I’m very wistful or nostalgic about our little hospital.

“I thought each year, it seemed to get better and better.”

She started on the board about 30 years ago, when Mr. Baker’s predecessor, the late Bill Green served as administrator.

She has watched as dozens of community hospitals across Virginia merged with larger organizations.

If the Fauquier Health-LifePoint merger takes place, only six independent hospitals would remain in the commonwealth:

• Arlington.

• Augusta County.

• Bath County.

• Chesapeake.

• Mary Washington in Fredericksburg.

• South Hill.

“We were part of a dying breed,” Mrs. Hall said. “You don’t want to have to make a deal. We are fine, in a strong position.”
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rearlwriter · March 14, 2013 at 11:24 am
LifePoint has said it is committed to helping Fauquier Health provide the best care for the community. Although all health systems – non-profit and for-profit alike – have to operate efficiently, LifePoint has a excellent reputation in the communities it serves for maintaining -- and improving -- the level of care provided. LifePoint has also committed to maintaining Fauquier Hospital’s Planetree designation – an important guidepost for patient-centered care.
deborah j · March 13, 2013 at 5:16 pm
Just like to know if care will drop if it for profit then saving money first ????????????
Ruth · March 13, 2013 at 2:08 pm
My husband and I have always had good experiences with Fauquier Hospital, we are always made to feel that any proceeders that we were having done we were always receiving the best, the people are so helpful, so friendly, very professional, PLEASE DON'T CHANGE THIS.
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