Originally published in the Fort Wayne News-Sentinel | Letter from Fort Wayne Physicians LLC
Dear fellow Lutheran Health Network employees, members of the medical staff and board members:
As you all are now aware, the Board of Community Health Systems (CHS) has notified us, in our capacity as members of Fort Wayne Physicians LLC (us, or we, as used in this letter), that CHS is no longer willing to engage with us or hear from us regarding the many critical issues that we have identified and demanded be corrected at Lutheran Health Network (LHN). CHS worded their refusal as a rejection of an offer from us to purchase LHN; but there should be no confusion.
The “offer” they refer to was the willingness of several potential partners to purchase CHS’ interests in LHN, if they were able to move ahead with due diligence alongside the doctors. Our doctors would have sold nothing and bought nothing. Instead we would have secured a new partner committed to support LHN and our community. What is at stake here is our ability to bring about the changes that we all agree are necessary and CHS’ attempt to discredit and eliminate the only organized voice we have had.
We are doctors, first and foremost. To each of us, the care and well-being of our patients here in the Fort Wayne community is the most important driving force in our lives. And LHN is central to that. LHN is part of our lives and our community. Its patients and employees are our friends, neighbors and family. As physicians we advocate for our patients and our staff.Last Monday, Community Health Systems told you their version of what has happened. Now we will tell you what really happened.
The systemic underfunding and loss of trust
The lack of investment within LHN has been glaring. From at least as far back as 2008, LHN has been suffering from repeated workforce reductions, hiring freezes, threats of furloughs, quarterly expense-reduction plans, employee benefit reductions and noncompetitive wage increases, all implemented by CHS without apparent regard to local input or opinion. Meanwhile, CHS’ capital reinvestment in LHN has been less than half of that of our local competitor and barely half of what CHS publicly reports as its average capital investment based on revenue. These actions took an enormous toll on our workforce, our facilities and on our equipment.
Throughout this period, despite CHS’ claims to the contrary, we, other physicians and members of the LHN Board, spoke repeatedly with our CHS division president and other members of the CHS corporate management team, urging them to increase CHS’ investment in LHN and address the personnel issues. In particular, we noted the need to (1) fund routine operating expenses, including new beds (current beds are now up to 25 years old), room-sterilization equipment for infection control and modern telemetry within the hospital, all of which have patient quality and safety impact; (2) make capital investments for growth, including a new heart center (proposed eight years ago), a new oncology center (proposed three years ago), and revitalize the Lutheran downtown hospital (proposed five years ago); (3) prioritize physician recruitment (the net growth of physicians within the last four years has been zero); and (4) implement an integrated electronic medical record.
During this period, LHN was generating healthy cash flow that could have funded these investments. However, instead of reinvesting this cash flow as we were demanding, CHS elected to drain everything they could out of LHN to, we suspect, help service the massive debt load of the parent company. It is true that as minority owners of LHN the physician owners received their share of the distributed cash. But that is not what we wanted. And we made that clear to CHS. If CHS had listened to us, our share, and CHS’ much larger share of the distributed cash from LHN, would have been reinvested into LHN and the community.
During this period, our first choice was always that CHS and management support LHN and make the necessary investments. Again and again, we spoke with whomever at CHS would listen to us. Again and again, we would hear reassuring words. But, again and again, the promises would come to nothing. Even now, for example, after more than three years of promises and multiple missed deadlines, the integrated electronic medical record rollout still has not been completed.
The potential new corporate partner
As it became clear to us that CHS would not provide the support LHN needed, we determined that the only remaining alternative would be to find a partner who could cash out CHS’ interests in LHN. It would need to be a partner who was committed to working with us and making the investments necessary to restore and rebuild LHN. We found and engaged in discussions with several such potential partners. They all understandably conditioned their willingness to make an offer on their being able to conduct customary due diligence, including speaking with our doctors as the most critical resource of LHN. CHS grudgingly agreed to allow us to talk with potential partners but demanded, as a condition of their approval, that we execute an agreement that, in addition to containing customary non-disclosure language (to which we did not object in principle, despite the fact it was unnecessary given we are already owners of LHN and therefore have a right to such information), contained a non-disparagement clause that required us to cease all of our communications with our customers and others in the community about their concerns and complaints about what was happening at LHN. CHS even demanded that we not be able to have candid communications with patients, colleagues and staff about LHN. We explained to CHS that we could not accept restrictions that would compromise our fundamental obligation to provide quality health care, patient and staff advocacy and process improvement. Compliance with CHS’ proposed restrictions would require that we not report faulty equipment to maintenance and that we not disclose a medical mistake to anyone, including patients and staff. Such restriction would even prevent us from telling a patient if LHN was not the best place for them to receive a particular treatment. We could not accept what essentially was a gag-order on anything related to LHN that was not good news. We shared these concerns with CHS.
We proposed alternatives that would address their legitimate concerns, but would permit us to continue to speak honestly and truthfully to our patients, our staff and the government. But time and again, CHS continued to insist on silencing us. It became apparent to us that CHS was more concerned about keeping us quiet, than progressing toward a sale.
Finally, in the first week of April, after months of unnecessary delay, after CHS had agreed to modify the restrictive disparagement language, we told CHS that we were ready to sign the agreement. But, within hours of us telling CHS we were ready to sign their agreement, CHS’ lawyers sent us a letter designed, we believe, to sabotage the entire process.
After Tim Hingtgin, the president and chief operating officer of CHS, having told us in December that CHS would sell LHN interests in an accelerated process to a partner we help identify and that the price range CHS was likely to recognize for LHN was 8-10 times EBITDA (for earnings before interest, tax, depreciation and amortization), they now sent a letter saying they would only consider offers for LHN of 12 times EBITDA or more. CHS knew that this change to 12 times was tantamount to taking LHN off the market. Values of our public competitors are in the 6-8 times EBITDA range, and currently HCA, the gold standard company in health care, is trading at approximately 7.5 times EBITDA. When we informed our potential partners of this development, they noted that at that valuation, CHS was not a serious seller.
CHS has claimed that we refused to sign a customary non-disclosure and nondisparagement agreement. As you now know, that is not true. The agreement CHS required we sign to initiate due diligence contained unacceptable restrictions on our fundamental obligation to provide quality health care, patient and staff advocacy and process improvement. And when they finally made the necessary changes, and we were prepared to sign, and told them we were ready to sign, CHS sabotaged the process.
The board meeting
As you all are also now aware, we were then invited to a meeting of the Board of CHS on May 15. We requested to speak with the lead independent director of the CHS board ahead of the board meeting to better understand the board’s agenda so we could be fully prepared. She refused. We were told by the president and chief operating officer of CHS that the purpose of the meeting was to provide an opportunity for us to directly address the board regarding our concerns with respect to LHN. Following the receipt of the invitation of the CHS Board meeting, many of us questioned whether this was a genuine opportunity to address the board or just another sham. We nevertheless decided to attend the meeting in order to not miss the opportunity to ensure that the board heard directly from us, not filtered through CHS management, the problems and challenges facing LHN. We also determined to indicate to the board that several potential partners were interested in acquiring CHS’ interests in LHN, subject to being provided an opportunity to conduct diligence of LHN alongside the doctors.
Then, just two business days before the board meeting without talking to us, CHS suddenly announced an intention to invest $500 million into LHN over the next five to six years – an intention, short on details and without any legally binding effect.
At the board meeting it quickly became clear to us that the goal of CHS’ management was to blunt our message regarding the long-standing, unaddressed, and continuing problems at LHN. Management constantly interrupted our presentation to the board, claiming they had had no knowledge of the problems, and that the lack of knowledge was someone else’s fault. Either ours for not talking to Wayne Smith, the chief executive officer of CHS, directly, or the failure of subordinates within CHS’ corporate management to report upward. And of course, the $500 million commitment was cited, time and again, to persuade the board that as soon as management had heard of the issues, management was ready to put major money up to address the problems. From our view, it was all a fiction, staged for the board. We knew we had spoken to members of the CHS management team, we knew we had sent repeated communications to the board with copies to Smith, and local management had assured us they had brought the message to the highest levels of CHS. As for the $500 million intention, how are we to know whether it is real? Whether this time, the promise will be fulfilled? Or if it is merely a grand gesture rushed out to pacify the situation when the concerns became escalated publicly?
And the next step for CHS? An attempt to discredit us, and the more than 250 other physicians and the medical staff standing with us, by claiming among other things, that we had not made a “bona fide” offer, when they knew that any “bona fide” offer could only be made by one of our potential partners. And that no “bona fide” offer could be forthcoming from any potential partner until they had the opportunity to conduct due diligence alongside the doctors, the very diligence that CHS had refused to permit. They knew, when they scheduled the meeting, there was no real opportunity for a “bona fide” offer.
We communicated to the board that several well-known and qualified potential partners were interested and the value we believed, after discussions with the potential partners, they would be prepared to pay for CHS’ interests in LHN (a value well within the guidance provided by the president and chief and operating officer of CHS) if they were provided the opportunity to conduct due diligence alongside the doctors. Just in case there was any remaining confusion, CHS’ lawyers also wrote to our counsel last Monday, and threatened us with legal actions if we were to continue our campaign regarding the problems facing LHN, and specifically threatened us with legal action if we continued to send any such further communications to the CHS board.
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Lutheran Health Network, our patients, facilities and employees represent important parts of our lives and are integral to the success of our communities. LHN has developed and supported the highest quality and complex levels of care available in the United States. Everything we have achieved has only been possible with the tremendous support we receive from our staff, our patients and our community.
We continue to be dedicated to our patients and ensuring that LHN is the best that it can be, and doing what this community believes we need to do, to accomplish that. We need to hear from you.
Fort Wayne Physicians LLC, by the following members: Drs. Mark King, Todd Rumsey, Jerald Cooper, Praveen Kollipara, Richard Cardillo, Maurits Wiersema, Matthew Carr, Vijay Chilakamarri, Vincent Scavo.