Shands CEO says $21.4M HMA Deal Will Help Economy in Rural Florida

John Commins, May 27, 2010

Shands HealthCare CEO Timothy Goldfarb says the nonprofit health system's decision to sell a 60% controlling stake in three money-losing hospitals in rural Florida will help the economies of the small communities they serve.

"What we are describing is an opportunity to grow our facilities," Goldfarb said at a media availability announcing the $21.4 million deal with Naples, FL-based Health Management Associates.

"Shands facilities are the pivots in the economic growth of our communities. Yes we provide outstanding healthcare, but we surely drive the economies in most of these economies. What this partnership will facilitate is the growth of these programs." The three University of Florida-affiliated hospitals, Shands Lake Shore, Shands Live Oak, and Shands Starke, reported losses totaling $14 million in the last three years, and were projected to lose another $7 million this year, despite $54.8 million in facilities upgrades and renovations over the last 14 years.

The losses were blamed on increases in uncompensated care and a competitive market, and were a key factor in the decision to sell controlling interest, which allows HMA to concentrate on the business and management side, while Shands focuses on medical operations.

"We've done wonderful things in partnership with the employees and medical staff in these communities, but we also learned our limitations," Goldfarb says. "We learned that we don't know all there is to know about running hospitals in communities the size of Live Oak, Stark, and Lake Shore. We learned that we have only so much capital to go around in the Shands system and sometimes we don't invest in our communities the way we should invest to grow these programs. And we learned that we have a lot to do as an academic health center. To accomplish those goals it is better to do them in partnership with somebody who is talented and competent and knows what they are doing rather than trying to do it by yourself."

Shands HealthCare will retain 40% ownership in each hospital, which will continue to prominently carry the Shands name. The deal is expected to be finalized by July 1, with Shands and HMA sharing equal governance.

Gary D. Newsome, president/CEO of HMA, said the hospital chain will rely on experience to stem the red ink at the three Shands hospitals.

"We have carved out a niche very specific in nonurban healthcare. Because of that we have some strategies and processes and programs that we know work," he says. "This is an opportunity for us to not only bring our knowledge to the table in how to manage and grow local hospitals in small communities, but for us to leverage the knowledge of Shands because they have tremendous resources from an educational standpoint."

No layoffs are planned. Shands employees—including leadership teams—will become HMA employees. They will keep their base salaries, and tenure will be honored. Employee benefits will change, but HMA said it provides "a wide variety of choices and a very competitive benefits package."

Most if not all local physician contracts will be transferred to the new jointly owned hospitals, with all service lines remaining in place. It is anticipated that practices will be added. Local advisory boards comprised of representatives from the medical staff, the local community, Shands, and HMA will be established at each hospital. Combined, the three hospitals operate 139 beds and generate approximately $100 million of annual net revenue.

When the deal is completed, HMA will operate 58 hospitals, with approximately 8,500 licensed beds, in non-urban communities in 15 states, including 22 in Florida. David Peknay, a director at Standard & Poor's, calls the deal "a pretty modest investment" for a company the size of HMA, which last year generated about $4.6 billion in net revenues from continuing operations.

Peknay says he couldn't say authoritatively what HMA might do differently to turn the Shands hospitals around financially, because he's not familiar with Shands' operations. Generally speaking, he says, "there are cases where a for-profit will come in and introduce aspects of operating a hospital that might be a little more cognizant of payer mix or service offerings, perhaps adding services that generate more revenues. On the for-profit side they have been very active in controlling costs. Many of them have been doing pretty well."

John Commins

John Commins is a senior editor at HealthLeaders Media.

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