The Internal Revenue Service has extended its probe of healthcare acquisition financing deals to some of the bonds issued to launch Provena Health.
The seven-hospital system based in Frankfort, Ill., told investors that it was informed of the examination on July 21 by the Illinois Development Finance Authority, which issued the bonds in 1998.
That brings to six the number of health systems that have publicly disclosed IRS reviews of their tax-exempt bonds (June 5, p. 2). In every case, the IRS wants to determine whether the bonds should be classified as refundings rather than new issues. Classification as refundings could jeopardize the bonds' tax-exempt status.
Provena's is the smallest financing under review. The IRS exam will cover three series of variable-rate issues totaling $280 million. A fourth series worth $175.4 million is not part of the examination because those bonds were structured as refundings and new borrowings, said Julie Seymour, an attorney with the Chicago law firm Ungaretti & Harris, general counsel for Provena.
Provena was formed in December 1997 by the merger of Franciscan Sisters Health Care Corp. in Frankfort; Mercy Center for Health Care Services in Aurora, Ill.; and ServantCor in Kankakee, Ill.
In a statement, Provena said its bond counsel, Orrick, Herrington & Sutcliffe, has not wavered from its May 1998 opinion that the bonds should not be classified as refundings. Provena said it would cooperate with the IRS and work to preserve the tax-exempt status of the bonds.
Meanwhile, healthcare attorneys are anxious for an IRS determination in at least one of the cases.
"It will be nice when they come out and say what their concerns are," said Steven Kite, a partner with Gardner, Carton & Douglas in Chicago. Kite said one of his clients is restructuring an upcoming bond financing in order to avoid potential trouble.
Other systems whose bonds are under review are Ascension Health in St. Louis; MedStar Health in Columbia, Md.; Texas Health Resources in Irving; Christus Health in Irving, Texas; and Catholic Health East in Newtown, Pa.