Lutheran’s parent called ‘weak cog’

May 20, 2017

Pressure is mounting on Community Health Systems to accept an offer from local doctors to buy Lutheran Health Network. But an expert in mergers and acquisitions says the effort is irrelevant.

The board of St. Joseph Hospital and a large group of Lutheran-affiliated medical staffers in separate meetings Thursday unanimously voted no confidence in CHS and in favor of local ownership. St. Joseph is part of the Lutheran network.

Past and present Lutheran employees plan a rally for 9 a.m. today to push for a sale.

And four Fort Wayne City Council members met with the media Friday morning at Citizens Square to throw their support behind a deal.

Dr. John Crawford, R-at large, told The Journal Gazette that the goal is to convince CHS officials it would be more trouble for them to keep Lutheran Health Network than to sell it.

If a sale doesn’t happen now, Crawford said, the asset might be worth only half as much a year from now if patients feel unsettled by the tension and seek treatment at rival Parkview Health instead.

Thomas Lys, a retired professor who taught mergers and acquisitions at the Kellogg School of Management at Northwestern University, said CHS board members have to consider that possibility. But the strained relationship with local employees and elected officials isn’t part of the equation for board members, who have a legal responsibility to do what’s best for shareholders.

“The board not only should not : but cannot : pay attention to that,” Lys said. Board members “could be personally liable” if they fail to live up to the requirement, he added.

When an offer is on the table, the board must seek an independent, expert opinion on whether the offer is fair, based on the asset’s value, Lys said. That process can take weeks or months.

Considering that Lutheran Health Network generated $300 million in profit last year, the offer would have to be serious money to persuade the cash-strapped Franklin, Tennessee, parent company that it benefits more from selling the network.

Crawford, a Parkview-affiliated radiation oncologist who is also on Lutheran’s medical staff, isn’t part of the group making the offer and doesn’t know details. He was joined at the news conference by Dr. John Ducker, a local nephrologist who is part of an independent practice that treats kidney patients inside Lutheran-owned hospitals.

Like Crawford, Ducker isn’t part of the group making the buyout offer, and doesn’t know who the group’s members are or how much they are offering for the eight-hospital network.

But Ducker said he relies on people working in every capacity : including nurses, lab technicians, custodians and administrators : to provide excellent care to patients.

“Right now, the weak cog is CHS,” he said.

After the formal remarks, Ducker was unable to point to specific lapses at Lutheran-owned hospitals caused by CHS not reinvesting in the Fort Wayne network.

“I just feel that the staff are unhappy,” he said.

Ducker acknowledged that Parkview’s employees are “not always” happier than the Lutheran staff.

In a social media posting announcing today’s rally on the Lutheran Hospital campus, an organizer wrote: “Come show your support for our patients, physicians, employees and community to tell CHS their offer of $500 million is too little, too late. CHS, please leave our community! Trust is earned. Not purchased.”

Last week, CHS announced it will invest $500 million in Lutheran Health Network over the next five to six years.

But critics say local buildings and employees have been neglected for far too long.

Ducker, who wasn’t invited to join the buyout group, would like Lutheran’s buildings to be renovated and the nursing staff to be expanded. Even so, Ducker, Crawford and others praised the care provided by Lutheran Health Network’s staff. Crawford described it as excellent.

Councilmen Tom Didier, R-3rd; Russ Jehl, R-2nd; and Jason Arp, R-4th; added their support for the health care provider and said Fort Wayne residents are well-served by two strong, competing health care systems. Councilman Michael Barranda, R-at large, couldn’t attend but asked Crawford to read a statement on his behalf.

CHS acquired Lutheran Health Network in 2007, when it bought Lutheran’s parent company Triad Hospitals Inc. for $5.1 billion. Lutheran Health Network was created and owned by Brentwood, Tennessee-based Quorum Health Group in the 1990s before being acquired by Plano, Texas-based Triad in 2001.

John Sampson, president and CEO of the Northeast Indiana Regional Partnership, attended Friday’s news conference “to listen to the conversation.”

Although Brian Bauer, Lutheran Health Network’s CEO, is on the Regional Partnership’s board, Sampson said they haven’t spoken about a potential sale.

“I don’t think this is about taking sides,” Sampson said before the event. “This is about supporting Lutheran Health system in our community.”

Eric Doden, CEO of Greater Fort Wayne Inc., also attended.

Doden said he believes the community would benefit if Lutheran’s network were locally owned and allowed to reinvest profits here.

But he also believes his nonprofit organization has a role to play if the doctors’ offer isn’t accepted. Doden referred to CHS’s investment announcement.

“It’s part of our responsibility to ensure they do that,” he said.

Councilman Crawford also referred to the $500 million announcement during his formal remarks, calling the timing “a little suspicious” because it happened just days before CHS officials were scheduled to sit down with local doctors to discuss the buyout offer but years after investment requests were first submitted by local hospital leaders.

Based on what he’s been told, Crawford believes about 300 doctors collaborated to make the offer. The effort isn’t controversial from his perspective.

“For Fort Wayne, this is a no-brainer,” Crawford said.

But holding onto an asset that generates hundreds of millions in annual revenue might also seem like a no-brainer to CHS board members, who are juggling billions in debt and various underperforming hospital holdings.

The company reported a loss of 15.54 a share, for last year.

Jim Vann, a Rea Magnet Wire board member, was formerly chairman of the local wire manufacturer. He remains its largest shareholder. Vann believes it will matter to the CHS board that Lutheran staffers and Fort Wayne community members want the board to sell.

“They want to have a good image in Fort Wayne, and I think they will go to some depths to do that,” he said.

But sentiment has limits. “Obviously, I think board members will do what’s best for the shareholders, whom they represent,” Vann said during a phone interview.

Jerry Henry, chairman of St. Joe Hospital’s board, is on edge.

“I’m very concerned about the future of this transaction because I want to make sure St. Joe remains a viable downtown medical provider,” he said.

“It’s getting to be a pretty strained relationship between Community Health Systems and Lutheran Health Network,” he added.