Hospital management company to acquire CHP's Mercy Knoxville

June 1, 2011

Health Management Associates, a Naples, Fla.-based hospital management company is in negotiations to purchase Mercy Health Partners of Knoxville, Tenn., potentially by fall. The seven-hospital Mercy network operates in East Tennessee. It is sponsored by the Sisters of Mercy and is part of Cincinnati's Catholic Health Partners.

In a message to Mercy board members, associates and physicians, Mercy President and Chief Executive Jeffrey Ashin said it was extremely difficult to narrow down the list of suitors. "We received outstanding proposals from many excellent health care organizations," he said.

Terms of the deal currently are being negotiated, and Mercy has not disclosed the sale price.

Under Health Management's ownership, Mercy would become a for-profit provider and would end its official connection with the Sisters of Mercy and the Catholic Church. The buyer has agreed, however, that if the deal is completed, Mercy facilities will not provide abortion or active euthanasia. The buyer also said it will continue or even improve upon Mercy's charity care policies, maintain the network's spiritual care services and retain some of Mercy's spiritual traditions and statuary. Health Management plans to allow Sisters of Mercy to continue to serve in the positions they currently hold at Mercy hospitals after the acquisition. The facilities likely will be renamed.

Jerry Askew, Mercy senior vice president of external relations, said Mercy leaders do not expect any significant changes in Mercy's makeup or staffing immediately after the sale.

Mercy leaders have been pursuing a joint venture or sale because the organization requires additional capital to offset its $350 million debt load. The leaders have said that current parent CHP is financially strong but that it is unable to spread Mercy's debt service across its regions. While Mercy is strong operationally — in that it is efficient, provides high-quality services and has high patient satisfaction scores — administrators said, it has a poor revenue stream because of economic factors that can only be corrected through growth. But growth requires investments Mercy can't make because of its debt.

Askew explained that other factors also have compelled Mercy to explore affiliation and sale opportunities. Mercy, like most other health care providers, has been hit by the effects of the nation's economic downturn — for instance, it has seen a rise in the number of unemployed and uninsured community members. The regional network also has seen declines in its care reimbursements from government and commercial payers. Also, the greater Knoxville area is a crowded market, with three major systems, multiple community hospitals and a children's hospital competing to serve a regional population of about 750,000.

Mercy leaders said the organization chose to enter exclusive negotiations with Health Management because that company has committed to invest capital in Mercy. Mercy administrators also said the buyer understands and is committed to Mercy's mission and values. Also, Mercy leaders said Health Management has a strong track record at the organization's 54 hospitals when it comes to engaging physicians.

Health Management and Mercy now are conducting due diligence, negotiating the agreement terms and seeking approvals from CHP, regulators and the church.

Upon the early May announcement of the deal, Bishop Richard Stika of the Diocese of Knoxville, issued a statement saying that since the Sisters of Mercy opened their first Knoxville facility in 1930, the community "has enjoyed the many benefits of Catholic health care — benefits that were not merely physical but also spiritual. The news that Mercy Health Partners will cease to operate (as a Catholic facility) is an occasion of sadness at the loss of this history of compassionate care, which was a true sign of our Catholic values."

Bishop Stika praised the sisters and the Mercy associates and physicians for their service to the community.

The Health Management-Mercy deal comes as CHP closes on the sale of another region — Mercy Health Partners of Scranton, Pa. — to Community Health Systems of Franklin, Tenn.

Catholic Health Partners

In its four regions, Catholic Health Partners runs 31 acute care hospitals, including those in Knoxville. CHP's regional networks also operate long-term care residences, housing sites for the elderly, home health agencies, hospice programs, outreach services and wellness centers.

CHP's regions are:

Northern Division

  • Mercy in Toledo, Ohio
  • Mercy in Lorain, Ohio
  • St. Rita's Health Partners in Lima, Ohio

Central Division

  • Community Mercy Health Partners in Springfield, Ohio
  • Mercy Health Partners Ð Southwest Ohio in Cincinnati

Southern Division

  • Mercy Health Partners – Kentucky in Paducah, Ky.
  • Mercy Health Partners – Tennessee in Knoxville

Eastern Division

  • Humility of Mary Health Partners in Youngstown, Ohio


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