Saint Luke's Medical Center in Cleveland has signed a letter of intent to join a 50-50 joint venture between Columbia/HCA Healthcare Corp. and Sisters of Charity of St. Augustine Health System.
The sale of 474-bed Saint Luke's to the joint venture organization would remove its not-for-profit status. Terms of the sale haven't been decided.
The transaction would give the joint venture three hospitals in the Cleveland area as well as hospitals in Canton, Ohio, and Columbia, S.C.
Saint Luke's, which is affiliated with the United Methodist Church, makes "a good match for the Catholic healthcare programs supported by (Sisters of Charity) facilities," said Sister Mary Ann Andrews, president and chief executive officer of the Sisters of Charity, or CSA, system.
Saint Luke's has suffered operating deficits since 1994 when it lost a contract with HMO operator Kaiser Permanente. That took about a third of the hospital's business, said Allen Tracy, the facility's chief financial officer.
He said being part of a large system with name recognition could help attract patients to its inner-city location.
"We seem to have our share of managed-care contracts right now. It's just getting the patients directed to us," he said.
The joint venture includes St. Vincent Charity Hospital, also on Cleveland's east side, and St. John West Shore Hospital in Westlake, Ohio.
Proceeds of the sale will go to a charitable foundation to be managed by the Saint Luke's Hospital Association, which is associated with the United Methodist Church.
A sale price hasn't been set, but the foundation's funds are expected to total $80 million to $90 million, Tracy said. The amount will include the hospital's existing endowment and assets such as cash that are not part of the sale.
The book value of the buildings and equipment to be purchased is about $50 million, Tracy said. Saint Luke's reports total assets of $113 million and about $30 million in debt. In 1995, the hospital had an operating loss of $900,000 on net patient revenues of $94.5 million. That compares with operating income of $1.4 million on revenues of $98.3 million in the previous year.
Since 1994, Saint Luke's has had an affiliation agreement giving Blue Cross and Blue Shield of Ohio a role in its governance but no equity. The Blues plans to sell most of its assets to Columbia, but Saint Luke's said its sale will proceed regardless of whether the Blues sale goes through (See related story, p. 14).
The agreement with the Blues, which currently gives the insurer one seat on the hospital's board, would terminate upon completion of the sale.