Ardent Health Services has bid an undisclosed amount to purchase East Texas Medical Center Regional Health Care System in a deal that would make the new entity an affiliate of the University of Texas medical system, sources say.
The embattled ETMC, which operates 10 facilities, has been “looking for a strategic partner” since April, following the system’s downgrade by Moody’s Investor Services to basically junk bond status.
Two potential buyers stepped forward. One was Hospital Corporation of America, a Nashville-based company with nearly 300 hospitals and surgery centers, including Medical City in Dallas.
The second bidder was Ardent Health Systems, which is largely owned by Equity Group Investments, a firm founded and managed by investor Sam Zell.
Bids were similar in size, but the Ardent proposal was more than a simple sale, say sources close to the negotiations. Using a model developed in a deal with the University of Kansas Health System and St. Francis Health in Topeka, Ardent’s proposal to the ETMC board last week involved the hospital system becoming part of the University of Texas medical branch system.
The deal will have to be approved by the UT Board of Regents.
UT Health Northeast will play a role in running the new entity’s teaching and research functions, sources say. But ETMC will not become a branch of UT Health Northeast.
Instead, the new ETMC will have a local board of directors.
The Tyler Paper reached out to ETMC and UT Health Northeast for comment on Wednesday. An ETMC spokesperson said they have no comment and UT Health Northeast did not respond.
Here’s how the arrangement works in Kansas, according to information from Ardent.
“The University of Kansas Health System and Ardent Health Services will share governance with equal representation on the joint venture board of directors, and will establish a local board of trustees for the hospitals,” an Ardent press release said. “St. Francis Health will continue to be led by local management.”
At the time, St. Francis was in trouble.
According to the Associated Press, its owners had been “trying to sell the hospital for a year and had vowed to close it this summer if new management wasn’t found.”
AP added, “Ardent, based in Nashville, Tennessee, has 20 hospitals in six states, with 5,000 doctors and 18,000 employees. It has six other joint venture partnerships with nonprofit health systems like the University of Kansas.”
In the St. Francis announcement, Ardent said it would “preserve the jobs for substantially all of St. Francis Health’s 1,600 employees, including employed physicians, and provide the hospital with a $50 million infusion of capital during the first year.”
Sources close to the ETMC deal say there will be a similar infusion of much-needed cash, but did not disclose how much.
The ETMC system has had a tough year, with the Moody’s downgrade and a lawsuit from the U.S. Department of Justice against its former ambulance division, Paramedics Plus.
That suit claims the agency engaged in a $20 million kickback scheme involving Oklahoma’s public Emergency Medical Services Authority. The suit was brought by a whistleblower, but the U.S. Attorney’s Office for the Eastern District of Texas joined it in January.
Paramedics Plus has now been spun off into a separate entity, and is not part of the Ardent deal.
The Moody’s downgrade wasn’t a result of the lawsuit, but rather a result of its performance in recent months, along with the purchase of regional competitor Trinity Mother Frances Health System by the larger Christus Health.
“The downgrade to B3 (speculative) reflects the significant variance to budget through the first quarter of FY 2017 and the rapid, unexpected decline in liquidity,” Moody’s said in its credit opinion. “Weakened system performance is driven by declining volumes, a recent change in the highly competitive Tyler market following the acquisition of the competing system by a much larger entity, continued pressures on the rural hospitals, and high expense base given the system’s large physician employment division.”
ETMC responded to the downgrade in April with a statement.
“We recognize the assessment of Moody’s, and ETMC is working on a plan of action to avoid default,” ETMC spokeswoman Rebecca Berkley said at the time.
A few weeks later, ETMC said it was looking for a partner.
“In the past, healthcare systems of our size could uphold their mission of care and remain independent. It wasn’t easy, but it was doable,” ETMC President and CEO Elmer Ellis said in announcing the it was in search of a partner. “In today’s rapidly evolving and challenging healthcare environment, regional health systems have come to realize that partnering with larger organizations is helpful in many ways.”
According to sources, Ellis will not have a role in ETMC following the sale.