Attorney general to review finances

CHS' most recent purchase was a hospital system in Waukegan, Ill.
By WILLIAM K. ALCORN
and DON SHILLING
VINDICATOR STAFF WRITERS
YOUNGSTOWN -- The disposition of millions of dollars in foundation money and profits from the sale of Forum Health are among the top things the Ohio attorney general's office will examine before it approves the sale of the nonprofit health-care system to a for-profit organization.
The sale of Forum Health to a subsidiary of Community Health Systems cannot take place without the approval of the state attorney general's office, said Michelle Gatchell, an attorney general spokeswoman.
And the use of foundation funds and sale profits must be consistent with the original purpose of Forum Health, she said.
According to Ohio's charitable trust law, the attorney general's role is to "fully protect the value of the charitable assets for the benefit of the public," Gatchell said.
The Forum Health board of trustees announced Wednesday that it has entered into a nonbinding letter of intent to sell the local health-care system to a subsidiary of Community Health Systems based in Brentwood, Tenn.
Given Forum's debt, it is not known what profits, if any, will result from the sale.
The foundations have millions of donated dollars in their coffers, however.
Money in foundations
The Web site of Western Reserve Health Foundation does not reveal the amount of its assets. Part of the foundation's mission, however, is to raise funds to provide support for Forum Health, including Tod Children's Hospital, for which it funded numerous projects over the years.
Trumbull Memorial Hospital Foundation's Web site says it has assets of nearly $13 million. In recent years, the foundation bought a magnetic resonance unit, enlarged and relocated the oncology department and expanded the Hospice unit at TMH.
Sandy Steever, who observes hospital acquisitions for an industry newsletter, added that proceeds from the sale of nonprofit hospitals usually go to a foundation set up in the community. The foundations usually use the money to provide health education or services, he said.
Also, Gatchell said, the attorney general determines if the transaction contains any conflict of interest related to the payments or benefits for officers, directors, board members, executives, and experts employed or retained by the parties.
Also required, she said, are any other criteria the attorney general considers necessary, such as audited financial statements, to determine whether Forum will receive full fair market value.
State law also provides a timetable for the sale.
The attorney general has 60 days to approve or disapprove the sale once the deal is done, and can, with good cause, extend the deadline an additional 90 days.
Also, Forum Health would have to conduct a public hearing on the sale within 45 days after the attorney general's approval, Gatchell said.
It is not possible at this time to accurately determine Forum's fair market value. However, based on a formula provided by an industry expert, the purchase price could be about $330 million.
Steever, editor of Connecticut-based Health Care M & amp;A, said the median sale price of hospital systems in the past five years has been 75 percent of the annual revenues of the system. The median price is the one where half of the deals carried a higher price and half a lower price.
Total revenues
The total revenues of Forum's operations in 2004 were $443 million, according to financial reports.
Steever said Forum's purchase price could be higher or lower than the median figure based on a variety of factors, including the financial health of the system.
Community Health's most recently completed deal was the purchase of a hospital system in Waukegan, Ill., for $101 million. That system has a 336-bed hospital and a former hospital that had closed its acute-care services but now has 71 beds for nonacute-care patients.
Sale proceeds were used partly to set up a community foundation to provide health care and health education for area residents.
Community leaders are continuing to weigh in on the proposed sale of Forum Health.
Tom Humphries, president of the Regional Chamber, said he was not surprised by the Forum Health sale, but he was surprised the potential buyer is out of state.
"I thought we might see some interested parties in Cleveland or Akron," he said.
Humphries, a member of the board at Humility of Mary Health Partners, Forum's primary competitor, which operates St. Elizabeth Health Center in Youngstown and St. Joseph Health Center in Warren, said the sale is potentially good for the community for several reasons.
First, he thinks it is healthy for the Mahoning Valley to have two competitive health-care systems. It raises the bar for quality and productivity, and at the end of the day, consumers will benefit because both parties will compete for their dollars.
Humphries also thinks it will be good for Forum's employees, in that it will secure front-line jobs that provide services and care to patients, as opposed to the options of bankruptcy or closing down.
He said, however, there should be concern about jobs such as accounting and purchasing. When larger firms take over smaller firms, they look for economies of scale, Humphries added.
alcorn@vindy.com