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Published: Tuesday, August 16, 2011, 12:01 a.m.

Monroe hospital finds new partner; drops talks with Providence

The Monroe hospital backs out of talks with Providence and brokers a deal with a for-profit company.

MONROE -- The newest twist in Snohomish County's increasingly competitive health care market: A proposed joint venture between Monroe's taxpayer-supported hospital and Capella Healthcare, a for-profit organization based in Tennessee.
The move, announced Monday, means Providence Regional Medical Center Everett is now out of the running as a potential business partner with Valley General Hospital -- just four months after the two hospitals said they were working on a business deal.
The Monroe hospital decided to seek other business partners after talks with Providence stalled over the proposed lease agreement with the Monroe hospital, said Mike Liepman, Valley's chief executive.
"They put that indefinitely on hold," Liepman said.
Valley General decided to seek out other business partners that could provide the money-losing hospital with a badly needed source of cash, Liepman said.
In an email, Dave Brooks, Providence's chief executive, said he learned of Valley General's proposed deal with Capella late Friday.
Valley General lost $3 million last year. Year-end losses this year could hit at least $2 million, despite layoffs and the closing of its birthing unit in June.
Although the hospital isn't on the brink of bankruptcy, it could be difficult to deal with a large, unforeseen financial emergency, such as a $1 million repair to a CT scanning machine, Liepman said.
"We don't have $1 million" in financial reserves, he said.
Without a business partner that could provide the hospital with extra capital, its only choices would be steps such as asking property owners to approve a tax increase to support the hospital and asking employees for concessions on wages, he said.
With neither seeming likely, Liepman said the hospital board approved opening up talks with other organizations.
The deal between Capella and Valley General must win approval from the state Department of Health. If given the OK, the new business partnership could begin Jan. 1, Liepman said.
Capella Healthcare, based in Franklin, Tenn., operates 15 small- to medium-sized hospitals in seven states, including Capital Medical Center in Olympia.
Although many of those hospitals are in the southeastern United States, "we're trying to grow and expand in the West as well," said Rick Charbonneau, Capella's vice president of business development.
In May, Whidbey General Hospital turned down a proposal from Capella to co-manage that taxpayer-supported hospital.
Capella is promising Valley General $30 million in capital as well as a 40-year business agreement, Liepman said.
Capella would lease the hospital in a joint venture with the hospital district. The hospital district would buy a stake in the new organization, Liepman said.
"Lease models are becoming attractive … for hospitals like us," Liepman said. "It keeps the hospital district intact and in control, yet it gets the financing you need."
Part of the $30 million from Capella would be used to pay off current debt, including approximately $21 million in bonds, Liepman said.
Capella reinvests 100 percent of profits back into the hospitals it owns, Charbonneau said. It makes its money by charging management fees for the services it provides.
The company can help Valley General save money through steps such as combined purchasing of supplies and centralizing some business services such as legal services and marketing, Charbonneau said.
If the agreement with Capella is approved, Valley General would still be able to seek out business partnerships with other area health care organizations to provide specialty medical services, such as heart surgery, Liepman said.
The hospital's search for a business partner began in February, sending out requests for business proposals to eight large health care organizations in Western Washington. Because of Capella's interest in West Coast hospitals, it was aware of Valley General's search and later made a pitch.
Sharon Salyer: 425-339-3486 or salyer@heraldnet.com

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