Three Three independent, tax-exempt hospitals in northern Louisiana have agreed to join forces to buy a minority interest in a nearby rural hospital in Ruston, La.
The deal, which must be approved by Ruston's voters in a September referendum, is unusual because of its structure. Although tax-exempt hospitals increasingly are merging, they rarely combine to purchase a stake in another facility.
In this case, the three hospitals will buy a 40% stake in 130-bed Lincoln General Hospital, the only acute-care hospital in Ruston, for $10 million. The hospitals purchasing the stake are Willis-Knighton Medical Center, Shreveport; Glenwood Regional Medical Center, West Monroe; and St. Francis Medical Center, Monroe.
"This puts each of the regional hospitals in a position of involvement but doesn't give them a control position," said Phyllis Brasher, an attorney in the Dallas office of the law firm Jenkens & Gilchrist, which is advising the hospital on the transaction.
The hospital is owned by a police jury, which is the equivalent of a county commission, and leased to a not-for-profit corporation called Lincoln General. The hospital serves a rural community that also is home to two colleges, Louisiana Tech University and Grambling State University.
In February, Lincoln officials decided the facility needed to be part of a larger network and started sorting through the list of potential partners, said Terry Newmyer, senior manager in the Dallas office of KPMG Peat Marwick, which was hired to assist in that process.
However, midway through reviewing the applications, St. Francis proposed a joint venture ownership by the three regional hospitals located within a hour's drive of Ruston.
"The three partners could bring some areas of expertise that can be a great help to us," said Allen Tuten, the hospital's chief executive officer. The hospital remains profitable but needed to become part of a network for managed-care contracting, he added. For the fiscal year that ends April 30, the hospital expects to report net income of $2.5 million on operating revenues of $36 million.
The alliance offered a "circle of advocacy that would convert predators into allies," Newmyer said. He added the three-way interest offered a unique option because "it was difficult for the medical community to get behind any one not-for-profit."
Under the proposed governance structure, each of the tax-exempt equity owners would have one seat on a 10-member board of Lincoln General. The three members then would elect a fourth representative. In addition, the police jury would name three members and the current hospital board would name three members.
Even though the hospital trio would own 40% of the hospital, it wouldn't necessarily receive 40% of the profits. Newmyer said the hospital's profits would stay and be reinvested in the hospital. However, he added: "At some future date, a distribution could go back to the minority owners."
Tuten said the agreement ensures that the hospital maintains its current level of services and no staff members are laid off.