WMC ADDS BON SECOURS TO HUDSON VALLEY NETWORK

Making its second major strategic acquisition in little more than a year, Westchester Medical Center has further expanded its health care network in the Hudson Valley in a joint venture that makes the Valhalla hospital the majority owner and active manager of Bon Secours Charity Health System in Orange and Rockland counties.

The agreement, which the new health care partners said was completed in less than five months, was announced to Bon Secours Health System staff on May 20 before a signing ceremony at Good Samaritan Hospital in Suffern. Bon Secours and WMC officials in late December announced they had begun exclusive discussions to explore a joint-venture corporate relationship.

The agreement took effect on May 19, five days after the U.S. attorney in Manhattan announced an $18.8 million settlement that Westchester Medical Center agreed to pay to resolve claims the hospital engaged in serial kickbacks to a cardiology group practice and related Medicaid fraud some eight to 15 years ago. The alleged kickbacks were related to a previous effort by WMC to expand its service reach in the Kingston area and the mid-Hudson Valley.

The deal this month makes Bon Secours Charity's three hospitals and other facilities part of WMCHealth, the medical center's newly branded regional health network. It follows by one year the Valhalla hospital's acquisition of the former St. Francis Hospital and Health Centers in Poughkeepsie in a U.S. Bankruptcy Court proceeding. Rescued from insolvency and its imminent closing, the former Catholic hospital in Dutchess County now operates as MidHudson Regional Hospital of Westchester Medical Center.

The new joint venture makes WMC the majority member of the regional Catholic health system along with co-members Bon Secours Health System Inc., the former majority owner headquartered in Maryland, and the Sisters of Charity of St. Elizabeth in New Jersey. The regional system's hospitals, which also include Bon Secours Community Hospital in Port Jervis and St. Anthony Community Hospital in Warwick, draw patients from New Jersey's Bergen, Passaic and Sussex counties.

Westchester Medical Center, which is operated by Westchester County Health Care Corp., a public benefit corporation, will take over day-to-day management of the Bon Secours Charity Health System and its subsidiaries.

Bon Secours officials stressed the lower Hudson Valley health system will maintain its Catholic identity under the sponsorship of Bon Secours Ministries and the Sisters of Charity.

In a joint letter to colleagues, WMC president and CEO Michael D. Israel and Dr. Mary P. Leahy, CEO of Bon Secours Charity Health System, said the transaction gives the WMC network a total of 1,500 inpatient hospital beds, 166 nursing home beds, 2,800 physicians and nearly 10,000 employees. Leahy will remain in her CEO post at Bon Secours Charity.

Israel and Leahy said the partners are committed to retaining services currently provided at Bon Secours locations while strengthening many of those services and expanding advanced services and academic opportunities.

"Our goal," they said, "is to improve services in existing location so patients and residents can be cared for on any of our campuses in their community, while sending only those who need the advanced-care medical expertise of WMC to the WMC Valhalla campus - as has been the case in the past."

In a statement that describes the thrust of national health care reform and hospital consolidations in this region, Israel and Leahy said the joint venture "will allow us to leverage economies of scale and share clinical best practices, providing the most efficient delivery of services."

The expected new partnership, though, prompted Moody's Investors Service earlier this month to lower the Westchester County Health Care Corp.'s bond rating to Baa1 from A3.

The downgrade, which Moody's said affects approximately $447 million of bonds, was made because of WMC's then-pending agreement to assume a 60 percent economic interest in Bon Secours Charity Health System. Moody's said the affiliation will result in reduced liquidity and increased leverage for the Valhalla hospital, "as well as depressed margins ahead of a turnaround."

The lower bond rating reflects increased financial risk for WMC over the next several years as the Bon Secours system "implements a rapid expansion strategy to protect and grow market share in response to increasing competition," according to Moody's analysts.

Those challenges, the investors service added, "are balanced by WMC's strong market position as a large provider of high acuity services, track record of relatively stable margins, proven ability to turn around operations at a recently acquired bankrupt hospital, minimal debt structure risks and long-standing affiliation with Westchester County."

Israel after the signing ceremony in Suffern said he is confident the bond rating agencies will review and upgrade WMC's rating in six months to a year. He noted the financial concerns raised last year when WMC acquired the bankrupt St. Francis Hospital.

"A year down the road, we are far exceeding our projections for that," he said. "In any kind of joint venture or merger, it takes time to get the benefits out of this."

Moody's "did what they felt they had needed to do to fully protect the purchasers of the bonds," Israel said. "But we're very, very confident that going down the road, the bond rating will be restored."

Westchester Medical Center's expansion strategy in the region has it headed up the road in the Hudson Valley. With the Bon Secours deal wrapped up, Israel said the hospital will pursue another potential health care partnership with Health Alliance of the Hudson Valley, a 6-year-old health care system based in Kingston that serves residents of Ulster and Delaware counties.