Doctors defend rejected Lutheran offer Group plans to make case tonight at event at hospital.
Rejecting suggestions their attempted purchase of the Lutheran Health network was not serious or legitimate, a group of local doctors is going on the offensive to explain and defend their efforts and to enlist the community’s support for an ownership change they insist is essential despite rejection of their $2.4 billion plan earlier this month.
“We want the truth to be known, and the public can help apply pressure,” said a source close to the group of physicians who presented the proposal to the board of the network’s current owner, Tennessee-based Community Health Systems, earlier this month on behalf of themselves, other doctors, a private-equity firm and others. The source said the group needs to communicate to CHS that “we need more than you’re willing to offer. Please step aside and let someone else in.” The doctors plan to make that case tonight in an event at Lutheran Hospital expected to draw community leaders and hundreds of other physicians.
It’s a case CHS has already dismissed as inadequate, however, saying $2.4 billion for the eight-hospital Lutheran network is at least $1 billion too low and that the physicians’ group failed to meet several requirements that would have allowed negotiations to proceed. Among other things, CHS has stated the group never identified a qualified buyer and that its members never signed a non-disclosure agreement that would have allowed the sharing of sensitive information needed to negotiate a deal.
The source challenged those contentions, however, saying $2.4 billion represents a fair offer of about 10.4 times Lutheran Health Network’s earnings before interest, taxes, depreciation and amortization, or Ebitda.
Although an early version of the non-disclosure agreement would have required the physicians to remain silent about a deal and CHS for three years – something they refused to do – the source said members of the group did agree to sign a revised document until CHS dramatically increased its price to about 12 times Ebitda.
What’s more, the source said, the suggestion that a qualified buyer was never identified is incorrect because CHS executives knew the identity and the financial capabilities of the parties represented by the physicians’ group. Those partners, the source said, remain interested in Lutheran Health Network despite CHS’ decision.
“This has been a long time in the making. People in health care want to make a difference, but it’s very difficult when there’s always someone else you need to ask for something,” the source said, noting that CHS’ centralized decision-making process has made it more difficult for Lutheran to respond quickly to changing conditions in the highly competitive Fort Wayne market. CHS, which bought Lutheran Health in 2007 and owns 146 hospitals in 21 states, reported a loss of about $1.7 billion last year. Lutheran Health, conversely, had a profit of about $300 million last year and many doctors and employees say CHS has used that revenue to subsidize other facilities instead of adequately investing in facilities, equipment and personnel here.
The source said that lack of investment has made the network less competitive. “We met all (CHS’) criteria (for a sale). We’re looking for a solution, and I’m not convinced CHS has the solution we need,” the source said. “Patients look around and say, ‘The people (at Lutheran) are great, but the place looks run down. Patients have preferences.”
CHS has said the physicians group “threatened that, unless a sales transaction occurred on their terms and to a buyer of their choice, business disruptions would occur,” reducing Lutheran Health’s value. The source, however, said Lutheran employees and doctors will continue to put patients’ needs first. CHS recently announced plans to invest $500 million in LHN, but many of those capital improvements have been in the works for some time and will not address staffing or salary needs, the source said.