Saint Mary's Hospital in Waterbury, Conn., is pursuing a joint venture with LHP Hospital Group, an equity and management company. If the agreement is consummated as envisioned, Saint Mary's would preserve its Catholic identity and Saint Mary's and LHP would share equal governance authority over the joint venture. The hospital would convert to for-profit status.
Saint Mary's and LHP said in a joint statement that under the changed ownership structure, Saint Mary's will continue to abide by the same charity care and uncompensated care policies and fulfill the community benefit standards required of a tax-exempt hospital.
The hospital is sponsored by the Archdiocese of Hartford, Conn. Hartford Archbishop Henry J. Mansell chairs Saint Mary's Health System, the hospital's parent, and he appointed the task force which led the search for a potential partner — a goal the archbishop said was necessary to keep Saint Mary's "strong and vibrant." The task force received indications of interest from 16 candidate companies and narrowed the search to four finalists.
The archbishop said in a statement that after the ownership conversion, Saint Mary's will continue to abide by the Ethical and Religious Directives for Catholic Health Care Services and to operate in accordance with the moral, ethical and social teachings of the church. Archbishop Mansell wrote that Saint Mary's "is committed to continuing to provide community benefit programs and services and to improve health care services in the greater Waterbury community, and addressing the health status of the elderly, the poor, and the at-risk populations within the community."
At a March 22 press conference, Chad Wable, Saint Mary's president and chief executive, called the proposed transaction a "transformational event" for Saint Mary's, and one that will provide significant capital for service line expansion, to pay off debt, to fund its pension plan and to establish a nonprofit community health foundation.
The deal protects the jobs of all Saint Mary's executives and staff, according to LHP and Saint Mary's. LHP, which is based in Plano, Texas, will employ the hospital's staff and manage day-to-day operations of the hospital.
"The capital investment secures our future as a strong, local health care provider while providing greater certainty that we will achieve our vision of being the leading regional provider," Wable said. "We will now have the ability to invest aggressively in technology and service that will make health care better and more accessible for our community."
The parties said their definitive agreement is subject to continued due diligence and the approval of Connecticut regulators. They hope to finalize it within six months.
Dan Moen, LHP's president and chief executive, characterized the proposed joint venture as a "recapitalization" of the 347-bed hospital.
He said LHP will share governance and control with members of the hospital's current board, promoting local decision making. "While health care is big business, it is also a local business," he said at the press conference.
According to the terms of the agreement, Saint Mary's will contribute hospital assets valued at $135 million into a new limited liability company. LHP will put $108 million cash into that company, and it will commit an additional $75 million over five years to fund strategic initiatives at the hospital including service expansions. Moen said the hospital's significant cash flow will be reinvested into services.
Saint Mary's community health foundation, either the existing entity or a not-yet-created nonprofit foundation which would succeed it, will take an $108 million distribution from the limited liability company, according to Jim Shannon, LHP's executive vice president for development. The board of the survivor foundation likely will be comprised of current board members of Saint Mary's Health System, members of the Saint Mary's Hospital board and community members. The foundation board will use part of the distribution to pay off tax-exempt debt, fund pension liabilities and to create an estimated $40 million cash corpus for the foundation.
It is expected that the foundation will hold a 20 percent equity interest in the joint venture; LHP will have an 80 percent stake. Despite LHP's supermajority ownership, Shannon said that there will be "real shared governance" between the parties. LHP and Saint Mary's Health System each will have five votes on the joint venture board. Those five votes must be cast as a block. "Under this model neither of us can act unilaterally," he said.
The Saint Mary's contingent on the joint venture's board always will elect the board chair, and it will hold certain reserve powers. Shannon said the governance structure and the commitment to community benefit investments and charity care will allow Saint Mary's foundation to take nontaxable distributions from the joint venture. LHP will be liable for taxes on its distributions. After its conversion to for-profit status, the hospital will pay local sales taxes and real estate taxes.
LHP is managed by a team that used to lead Triad Hospitals before Triad was acquired in 2007 by Community Health Systems. Moen said the Saint Mary's joint venture will be LHP's fifth investment.
Among those deals is LHP's joint venture with the Seton Family of Hospitals of Austin, Texas, to build a $100 million hospital in Harker Heights, Texas. Seton is a member of St. Louis-based Ascension Health.