Duke LifePoint Seals Regional Health System Deal

A senior LifePoint executive discusses the organization's 80%–20% partnership deal with Rutherford Regional. Negotiations for three more North Carolina hospitals in the third quarter of this year are underway.

Duke Life Point Healthcare has finalized an 80% ownership stake in North Carolina's Rutherford Regional Health System.

The not-for-profit health system becomes the fourth in North Carolina to enter the Duke LifePoint affiliation, and another three hospitals are expected to join Duke LifePoint by this fall, says Jeff Seraphine president, Eastern Group at Brentwood, TN-based LifePoint Hospitals.

"In just a few years we'll have gone from a new partnership to something like seven hospitals in the state of North Carolina, one in southwest Virginia, and then some others from a national scale including Michigan and Pennsylvania," Seraphine says. "It's a very good start to the partnership and most importantly we are doing some great things in our communities and creating the values we thought we could together."

Rutherford Regional, based in Rutherfordton, NC, serves a three-county region just west of Charlotte, with a network that includes more than 130 physicians and 700 clinical and support staff. Financial terms of the deal were not disclosed, but Duke LifePoint pledged $60 million for capital improvements and facilities upgrades, and the proceeds from the deal are expect to free another $30 million for community health and wellness projects.

In addition, Rutherford Regional's tax status will change to for-profit and the system will pay local property taxes.

Rutherford Regional will continue to hold a 20% stake in the health system, with governance shared through a board with equal representation from both organizations.

Seraphine says Duke LifePoint did not go into the negotiations with a rigid game plan for affiliation, and was "comfortable" with a number of partnership plans proposed by Rutherford Regional.

"So, for us that question of is it 100% or 80%–20%, we are comfortable either way," he says. "A lot of the desire for that partnership really comes from the desire in the community itself and the boards we are working with and what they think is best for their organization at the time."

"We have found that the 80–20 has been a good place. But if that number changed a little bit either way, it is something we feel comfortable with. That is more up to the local board. They have found that to be a pretty good number with the amount of governance they continue to participate in."

Seraphine says a big question about determining the partnership structure depends upon how much the local partner wants to take responsibility for future investments.

"It becomes a balance. How much they want to have those proceeds that they could reinvest in the community? How much of those proceeds do they want to have available and how much do they want to be responsible for their share of the reinvestment going forward?"

"The other thing that makes it much easier is how we approach governance with them. Our governance and the way we share governance doesn't really change. So they can take less of a position without giving up a lot of governance. That is one of those places where we have grown to be comfortable in our partnership model."

Duke LifePoint is also in the midst of negotiations that could bring three more North Carolina hospitals into the fold in the third quarter of this year, Seraphine says.

"In just a few years we'll have gone from a new partnership to something like seven hospitals in the state of North Carolina, one in southwest Virginia, and then some others from a national scale including Michigan and Pennsylvania," Seraphine says. "It's a very good start to the partnership and most importantly we are doing some great things in our communities and creating the values we thought we could together."

"I don't know how long the window of consolidation occurs at the pace that it has been at in the last year or two but we feel very good about partnerships and the work being done and we are still seeing a significant amount of interest, so I would expect over the next year or two to continue to find ways to extend the partnership."