A deal for Marshfield (Wis.) Clinic to acquire its first wholly owned hospital, Lakeview Medical Center, Rice Lake, Wis., didnt go to a vote earlier this month as expected as the prospective partners continue to negotiate terms and a shifting legal landscape.
Lakeviews board of directors pushed back an initial vote on the deal for more time to settle Marshfield Clinics promised financial backing to build a new hospital and an independent community foundation, say executives involved in the deal.
Marshfield Clinics proposed acquisition is not without opposition. Former Lakeview board member Wayne Arnold has been sharply critical of the deal. Arnold contends Marshfield should pay fair market value for the financially strong Rice Lake hospitals assets, and proceeds from the sale should be invested in the foundation.
Proposed and recently completed federal rules also have slowed talks. None of the regulatory changes directly affect the clinics acquisition of 69-bed, not-for-profit Lakeview, but they have forced the Marshfield Clinic, a not-for-profit multispecialty physician group, to review its governance and hospital contracts, says Karl Ulrich, M.D., the clinics president. I dont expect it to endanger the talks at all, only delay closing as the clinic settles how changing regulations may affect operations, Ulrich says. Its kind of like preparing to run a marathon; youve got to be sure youre in tiptop shape, he says.
The deal, announced in late June, is now expected to close by March 31, 2008. If successful, Lakeview will become the Marshfield Clinics first wholly owned hospital. The not-for-profit and Ministry Health Care jointly own 25-bed Flambeau Hospital, Park Falls, Wis.
Though not final, tentative terms of the deal have sparked controversy, particularly regarding how much money the clinic should set aside for a community foundation. Lakeviews net assets total $44.1 million, according to its 2005 tax filing. Lakeview President Ned Wolf says no figure has been set, and the cost of Lakeviews replacement hospital will factor into the equation.
Michael Clark, a Chicago healthcare attorney and chairman of the American Bar Associations tax-exempt organizations committee, says acquisition deals between not-for-profits vary based on the financial strength of the sought-after hospital. Struggling hospitals may not have the leverage to negotiate conditions, such as expanded services, new construction or a community foundation. Healthy hospitals are better positioned to set terms on a deal, he says.
Lakeviews board rejected a prior offer from the clinic, but reversed course after the physician group announced it would build an outpatient surgery center in Rice Lake. Wolf says the hospital anticipated steep losses once the clinics competing surgery center opened. The Mayo Clinic, which operates a clinic in Rice Lake, owns the nearby 62-bed Barron (Wis.) Medical Center.
The Marshfield Clinics doctors in Rice Lake account for roughly 90% of Lakeviews admitting doctors. Officials projected a $3 million per year loss should Lakeview remain independent, in a brochure released after a packed public hearing in August. The hospital reported income of $5.6 million on $42.8 million in revenue when it closed its books March 31, 2006, the most recent fiscal year for which figures are available.
The brochure addressed other commonly asked questions, including the potential for conflicts of interest among directors. Sue Zahrbock, Lakeviews board chairwoman, says the board and the hospitals attorneys reviewed the hospitals long-standing conflict-of-interest policy. Lakeview cannot account for more than 10% of a directors business; no board member meets that threshold, she says. However, two Marshfield Clinic doctors cannot vote on the hospitals potential deal under the policy, she says.What do you think? Write us with your comments at [email protected]. Please include your name, title and hometown.