Coffee weighing its options

While Coffee Health Group officials review what has been described as a "serious" purchase offer from a private company, other possibilities for the organization's future remain viable.

Negotiations over a possible partnership with Helen Keller Hospital in Sheffield and Huntsville Hospital continue, and administrators from those facilities say discussions are progressing.

But the question remains in whose hands Coffee's fate lies.

RegionalCare Hospital Partners, a private health care company, has offered to buy Coffee Health Group's facilities, including Eliza Coffee Memorial Hospital in Florence and Shoals Hospital in Muscle Shoals.

Coffee and Keller Hospital officials have talked on and off for more than a decade about forming a health care partnership in the area. Those talks, at least until now, have not been successful.

"Discussions are further along than I feel like has occurred in the past," said Keller Chief Executive Officer Bill Anderson. "As we sit today, it's a little hard to say how the offer (from RegionalCare Hospital Partners) affects us."

Coffee's board chairman, Florence Mayor Bobby Irons, called the private company's proposal a "serious" offer, but it's unclear if the organization would be able to choose between the purchase offer or the potential partnership with Keller and Huntsville hospitals.

The uncertainty revolves around the amount of debt Coffee has and its obligations to its bond insurer, MBIA. Depending on the language of the contract between Coffee and MBIA, the bond insurer could be in a position to call the shots if Coffee fails to meet all requirements.

Coffee and MBIA officials declined to speculate on that possibility.

Since failing in 2008 to meet an aspect of its bond covenant with MBIA, Coffee officials have been exploring options to bring financial stability to their operation.

The covenants require Coffee to maintain the equivalent of 90 days operating expenses in reserve and keep $1.15 million on hand at all times to meet its monthly bond payment obligation.

The hospital pays $1.2 million monthly toward its overall bond debt of about $140 million.

In June 2008, Coffee had $1.11 million on hand for the bond payment.

The deal with RegionalCare would reportedly eliminate Coffee's debt, thereby transferring ownership to RegionalCare and creating a private hospital.

Debt remains an issue for the potential merger, too.

"It's among the things we're working through and trying to figure out how to handle it better, and that takes time to examine," Keller's Anderson said.

Jody Pigg, interim president and chief financial officer at Coffee, declined to comment on the talks with Keller and Huntsville, saying it is still early in the discussions process. He also called the proposal from RegionalCare a "nonstory."

The prospect of a private hospital competing with Keller, which is a public community hospital, is something hospital officials must consider, but Anderson said he doesn't see the possible arrangement having a great effect on his hospital.

Private hospitals have been accused in some areas of passing all patients unable to pay for services to public hospitals, which drives up the costs of running a public facility. ECM, Shoals and Keller spend in the millions of dollars each year caring for indigent patients.

"When people show up in an emergency room, they must, by law, be treated," Anderson said. "Only two things can trigger the transfer of a patient to another hospital. One is that you get a physician from another hospital to accept them, and the other is that the hospital where the patient is doesn't have the services to take care of the individual."

Anderson said a private hospital could require an individual to leave a deposit "but a lot of free care comes into the ER, and (a private hospital) must treat them the same way we do."

The Emergency Medical Treatment and Active Labor Act passed by Congress in 1986 requires all hospitals, both public or private, to treat the emergency medical needs of patients regardless of their ability to pay. Once stable, however, the patients can be transferred to a public facility or released.

"The main thing is that we would still have a competitive environment and a duplication of services that won't allow us to be more cost-effective," Anderson said. "I've always said that it would be in the best long-term interest of the Shoals community if we could figure out a way to work together and keep control of our health care here."

Although details of how a merger would work have yet to be resolved, it's clear it would involve each of the facilities in the Shoals as well as Huntsville Hospital.

David Spillers, CEO at Huntsville, said it makes sense for the hospitals in the Shoals to reach some type of arrangement.

"I say this because we're in an environment where reimbursements for hospitals are going down, and the Shoals is not growing a lot," he said. "I'm a believer in the community being in control of its destiny, and that we should try to see if there's a way we can work together to help the facilities in order to allow them to keep control.

"The reality is that hospitals across America are struggling right now, and with the little or no growth in the area, you probably have more hospitals than you need to serve the Shoals. We want to create some ways to make the facilities sustainable in the long run."

Spillers called the offer from RegionalCare "a distraction rather than a motivator" for the ongoing discussions among the three hospitals.

"We're moving probably as fast as we can move toward a long-term commitment to working together," he said. "With this, someone from far away who comes in to pump all this money in and make all kinds of promises can create a diversion."

Spillers said he's aware of the reputation linked to partners in RegionalCare.

"The community and physicians have to be the ones to decide if this sounds good, but (RegionalCare CEO) Martin Rash has a track history of buying hospitals," Spillers said. "So far, all that he has bought, he's sold, and he'll do it again because that's how he makes his money. That doesn't mean it's a bad thing; it's just his business."

RegionalCare was formed with Rash and John Rutledge, chief financial officer, in July with a $300 million investment by Warburg Pincus, a private equity firm. According to a press release from Warburg Pincus dated December 2007, the equity firm infused $1 billion into MBIA as a means to keep the bond insurer solvent at the outset of the recession.

Jeff Atwood, spokesman for the company, said Coffee would be the first purchase by RegionalCare, but Rash was involved with a hospital sale in Selma in 2004 when he was employed with Province Healthcare.

"It was a situation where there were some troubled facilities, and we came in and helped them realign their purposes and make sure they had the right resources," Atwood said.

In 2005, Province Healthcare merged with LifePoint Hospitals to create a hospital company to provide health care in non-urban areas. The organization, which includes 50 hospitals across the country, also includes Vaughn Regional Medical Center in Selma.

Spillers stressed that Huntsville Hospital would be a minor player in a newly formed hospital organization involving Keller and Coffee. He said he envisions a board comprised primarily of physicians, members of the two hospital organizations and a single representative from Huntsville.

"There are lots of things we could do if the Shoals and Huntsville Hospital were working together on nonclinical areas, such as purchasing, materials management and bill collecting," he said. "These are things we could do more efficiently if we were working together than either one of us could do independently."

Being involved in the Shoals is something that is part of Huntsville's 10-year strategic plan, Spillers said. The hospital already is forming relationships with health care facilities in Athens and Decatur.

He said Huntsville is willing to make a monetary commitment to make the partnership with Coffee and Keller work.

"We're looking at ways to refinance the debt, and Huntsville Hospital has agreed to put money toward that to help do it," Spillers said. "There are options and ways for Coffee to do that so MBIA is not breathing down its neck."

He said the fine-tuned details of a partnership or merger have not been fleshed out, but he added acute services could end at Shoals Hospital in order to grow the geriatric psychiatric and rehabilitation programs there while moving all emergency services to Helen Keller.

"There are a lot of savings when you do something like that," Spillers said.

Some area doctors have voiced concern that a partnership with Huntsville Hospital would result in hospitals in the Shoals being used as a patient referral service.

"A key group in all of this are the physicians, and we have to build their trust," Spillers said.

"We want to keep that business there and see only those who can't be treated in the Shoals because that service is not offered."

He said 40 percent of the patients treated at Huntsville come from outside the city.

Michelle Rupe Eubanks can be reached at 740-5745 or michelle.eubanks@TimesDaily.com.