Hospital pact includes sell option [The Wilson Daily Times, N.C.]

Oct. 30--The proposed joint ownership agreement between Duke LifePoint Healthcare and Wilson Medical Center includes an option that would allow WilMed to sell its minority stake in the hospital to Duke LifePoint after the second anniversary of the deal's closing.

Known as a "put option," the provision, which is expected to be included in the definitive agreement between the two entities, states within 30 days after each of the second, third, fourth, fifth and 10th anniversaries of the closing, Wilson Medical Center would have the right -- but not the obligation -- to put its entire membership interest in the joint venture to Duke LifePoint.

The purchase price for the membership interest, as it's termed, would be dictated by the fair market value at the time the option is exercised.

The legacy board of Wilson Medical Center would make a decision, if any, as to whether to exercise the option, according to Rick Hudson, president and CEO of Wilson Medical Center. The decision wouldn't fall with the 50-50 governance board/Joint Venture Board.

In addition, there's a "call option" that will be included in the definitive agreement. If Wilson Medical Center's ownership has fallen below 10 percent, Duke LifePoint has the option, but not the requirement, to buy the rest of the hospital.

Again, the price would be dictated by the fair market value at the time.

The call option, which Hudson didn't believe was likely to come to fruition, could be possible if Wilson Medical Center failed to maintain its capital commitments on the 80/20 membership split.

The options are detailed in documents filed with Wilson County government in relation to the proposed joint venture.

THE DETAILS

Duke LifePoint Healthcare is essentially offering $56 million for an 80 percent majority ownership interest in Wilson Medical Center, according to the documents obtained last week.

In its due diligence of the deal, Duke LifePoint valued Wilson Medical Center at $70 million and the $56 million represents 80 percent of that value, Hudson said.

The specific deal on the table calls for an 80/20 joint venture with Duke LifePoint Healthcare securing majority ownership interest, local hospital officials said. The governing board would have 50/50 composition.

Wilson County government ultimately has to give up its interest in the hospital.

A public hearing is planned on Nov. 4 in front of Wilson County commissioners. Commissioners have to vote on what's known as a reverter clause Dec. 2 for the deal to proceed.

The agreement obligates the joint venture to spend a minimum of $120 million in connection with capital improvements at the hospital during the next 10 years. A master facility plan will be developed.

"As tight as we see things getting, it's a very substantial commitment," Hudson said.

Even though the county advertised for bids from other entities, no other offers were really expected and none came through after Duke LifePoint was identified by hospital trustees as their choice, hospital officials said.

The deadline for other offers has passed, Hudson said.

"The state required us to go through this," Hudson said. "We selected what we thought was the best partner moving forward for us and the other players knew that."

Essentially, Duke LifePoint is the only player left at the table, so to speak.

POSITIONING

In a letter that accompanies the documents to the county, Paul Hannah, senior vice president of development at LifePoint/Duke LifePoint, said the partnership is uniquely positioned to improve access to services and specialists, enhance market share and best position the hospital for sweeping health care reform.

"Duke University Health System and LifePoint have enjoyed a mutually successful relationship," Hannah said. "We share an interest in collaborating with hospitals, physicians and patients to bring quality health care services to non-urban communities."

"Duke offers clinical and quality guidance as well as access to highly specialized medical services," Hannah said. "LifePoint will provide a range of management, financial and operational resources, including access to capital for ongoing investments in new technology, facility renovations and additional sites of care."

The agreement between the entities says the hospital will offer employment to all active employees at the closing of the transaction with a competitive benefit structure.

"We believe Duke LifePoint and WMC will benefit from this partnership as will the residents of Wilson County and surrounding communities," Hannah said.

His letter indicated Duke LifePoint officials plan to participate in the Nov. 4 commissioners meeting, the meeting where the public hearing is planned.

COUNTY COMMISSIONERS

Commissioner Tad Piner said although the county's ownership will be 20 percent, to keep local participation, the board will be 50/50.

"We haven't had formal discussions on this," Piner said. "Again, as a commissioner, I am looking at the reverter clause for the joint venture. We want to make sure that we ensure the medical care provided to patients in Wilson County will not change from how it is now. We want to make sure we take care of citizens in Wilson County."

He said the full board needs to discuss the put and call options.

"We do have representation of our board on the hospital board," Piner said.

Commissioner Rob Boyette said the county board will talk about the put and call options.

"Clearly, we will talk about that at the public hearing," Boyette said. "It's my reading of it is that Wilson Medical Center has the option to do that. The other option, should, if for whatever reason, Wilson loses its 10 percent, they could take over. I don't see that happening. That is why the planning is so important."

He sees Duke LifePoint bringing improved patient care and improved access to medicine.

"We will be keeping a county commissioner to be an observer during the meetings of the joint venture," Boyette said.

Boyette said the documents indicated the deal is pretty much what officials said it was going to be.

"It does commit to keeping Wilson Medical Center facilities, which includes the nursing home and the CAP (consumer assistance) program open. And that is important," Boyette said. "That was the question I had. That still means citizens should come to the public hearing. Everybody needs to ask what they want to ask. Citizens approached me and asked many questions about what will happen. This report does answer it. The biggest question was about the commitment to keep it open. I plan to follow up with questions at the public hearing."

MORE DETAILS

The transaction calls for Duke LifePoint to form a Delaware limited liability company that would act as a holding company for its subsidiaries to own and operate Wilson's hospital, including WilMed Nursing Care and Rehabilitation Center.

The agreement obligates the joint venture to adopt the hospital's indigent care policies.

In the event the joint venture fails to spend $120 million on capital improvements in 10 years, Duke LifePoint must pay the venture 80 percent of the unexpended portion as an additional capital contribution without diluting the ownership interest.

Although governance is through the 50/50 board of Wilson/Duke LifePoint, there are additional boards, all of which report to the main board. The appointed legacy board of trustees reports to the 50/50 board. Members will include physicians on the medical staff, community leaders and the CEO. A Wilson commissioner would only have observation rights.

"To ensure continuity of care in the community, the contribution agreement would obligate the joint venture to agree that the medical center's medical staff members in good standing as of closing shall maintain such medical staff privileges at the medical center immediately following the closing," a document states.

A Physician Advisory Council would be established along with a Quality Oversight Committee.

Hudson said some of the current hospital trustees will be appointed to the new boards.

He said the goal of increasing market share could be achieved through quality, programs and management expertise the hospital can't afford to have right now.

"Much like the WakeMed program that brought 100 heart stents to Wilson in its first year," Hudson said. "It's the same WakeMed doctors coming here."

"People don't feel they have to leave town anymore," Hudson said. "We're bringing Duke here, the quality and expertise. You don't have to go to Durham to get your care. That's how you grow your market share, bring that clinical expertise here and people don't have to travel. Our ability to bring quality increases. Our ability to bring quality to this community is going to help us as people realize we are bringing the absolute best to Wilson."

STARTING THE PROCESS

Wilson Medical Center officials announced their intention late last year to seek a partner for the future.

And a united Wilson Medical Center board of directors later announced it had signed a memorandum of understanding for a joint venture with Duke LifePoint. The implementation of the Affordable Care Act approved by Congress and signed by President Barack ObamaMarch 23, 2010, is driving the movement along with cutbacks in medical reimbursements.

These affiliations and nationwide trends have proponents and some critics who claim the ties could lead to higher patient bills and insurance costs as the organizations gain negotiating clout. On the other side, hospital supporters said smaller facilities can't survive and operate for their communities under the reform climate, and many of these hospitals face outdated facilities and need multi-million-dollar upgrades.

PUBLIC PROCESS

North Carolina's attorney general also must approve the deal.

There is a 60-day review window for Attorney General Roy Cooper, but his office doesn't have to take the entire two-month period.

The attorney general's timeline takes it potentially into December. The final closing is tentatively set for Dec. 31.

The public process taking place now stems from the charter and bylaws established when the hospital transferred from county ownership to become a tax-exempt organization.

As part of that transfer, the county retained an interest in the hospital in the form of a reverter as required by state law. Wilson commissioners have had to request proposals from no fewer than five bidders and hold hearings before they eventually vote on whether to release the reverter. The process must reflect the current work already undertaken by <org value="ACORN:3254536933" idsrc="xmltag.org">Wilson Medical Center and states no proponent will be considered unless also approved by Wilson Medical Center.

The final commissioners' vote could be on Dec. 2, according to the updated timeline.

MAJOR IMPACT

Wilson Medical Center has stood as a largely independent hospital since its inception in 1964.

This deal changes all that and has received a lot of attention because of the hospital's importance to the community on multiple levels.

The hospital, which has more than 1,300 employees, has emerged as the third-largest private employer in Wilson County. The hospital and its related facilities sustain a $56 million payroll, which provides a significant economic impact to the county.

Duke LifePoint is a joint venture of Duke Medical and LifePoint Hospitals formed to build a network of hospitals and health care providers. Duke University Health System calls Durham home. LifePoint Hospitals is headquartered in Brentwood, Tenn.

LifePoint alone plans to be in 60 communities in 20 states by the end of the year. The Duke LifePoint joint venture is in four hospitals.

jjimison@wilsontimes.com -- 265-7813

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