In a deal hailed as a first of its kind, national Roman Catholic health system Trinity Health intends to acquire a major metropolitan academic medical center, Loyola University Health System in suburban Chicago.
Trinity to buy Loyola
Letter of intent calls for debt assumption, cash
Trinity and Loyola announced late Friday that they have signed a letter of intent under which the Novi, Mich.-based hospital operator will make a cash payment and assume a portion of debt in order to become the sole owner of the health system, based in the Chicago suburb of Maywood.
“If we have skill, they have scale,” said the Rev. Mike Garanzini, president of the medical center's current owner, Loyola University Chicago. “It is precisely the kind of complement that would bring scale and skill together. So we saw it as the right time to make a move.”
Under the terms of the letter of intent, 535-bed Loyola University Medical Center and its network of clinics and campuses would be sold to Trinity in a transaction that would include $75 million from Trinity toward $150 million to build a medical research building on the medical center's campus. The sale would include Gottlieb Memorial Hospital, a 234-bed hospital in nearby Melrose Park, Ill., that Loyola acquired in 2008.
Though officials at Loyola said its finances have improved, the health system has struggled financially in recent years. Executives involved with the transaction said their intention with the merger is to help Chicago avoid the fate of other major Catholic archdioceses such as New York and Boston, which saw their last Catholic-owned hospitals close or be sold to secular companies in the past year.
The letter of intent between Loyola and Trinity begins a due diligence process that will include getting regulatory approvals and approvals from boards of directors of both entities. Terms of the final definitive agreement between the two sides will eventually become public.
Trinity President and CEO Joseph Swedish said the acquisition also dovetails with the goals enshrined in the Patient Protection and Affordable Care Act, which encourages the creation of continuums of care and greater physician alignment.
“Loyola University Health System has successfully built a physician enterprise. Strategically, that is a key ingredient in securing the future of healthcare delivery systems,” Swedish said. “You have to have a tightly integrated physician community.”
Under the deal, all of the academic faculty who are employed by Loyola University Chicago and practice in the medical center will remain employees of the university. Meanwhile, all of the clinical employees of the medical center will remain employed by Loyola University Health System, whose parent company would be Trinity.
The medical center's name will not change in the transaction.
Running the academic medical center has not been a profitable enterprise for Loyola University in the past several years, according to bond ratings analysts. Since 2008, the university has transferred millions to the health system to keep it from defaulting on bond covenants. Last year, the system laid off 14% of it workforce, finishing fiscal 2010 with a $7 million operating loss—an improvement over the $37 million loss seen in fiscal 2009.
However, Dr. Paul Whelton, president and CEO of Loyola University Health System, said operating changes have pointed the health system in the right direction, creating a $60 million swing in the positive direction over the past two fiscal years, including the one still in progress.
“Our financial performance, while certainly not perfect and not where we want to be, has been improving,” said Whelton, who was appointed in 2007. “Although we would like to be stronger financially, it's not a fire sale, which has happened in other places.”
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