Decosimo was engaged to sell Wood Memorial Hospital, a governmental hospital and nursing home that had struggled financially with debt guaranteed by McMinn County.
About Woods Memorial Hospital
Woods Memorial Hospital was a community hospital owned by Woods Memorial Hospital and Nursing Home District (Woods Memorial) located in Etowah, TN. Woods Memorial served McMinn County, TN, a county with a growing population of 50 thousand.
Woods Memorial had struggled financially for several years, with a significant loss the previous year. The County had guaranteed a Line of Credit to the Hospital with the condition that it be sold. Woods Memorial was facing significant competition from a for-profit hospital, in addition to a surgeon owned ambulatory surgery center. Woods’ nursing units were out-dated, as they had semi-private rooms with hall bathrooms, and much of its equipment needed to be replaced. Woods was also in the fifth year (of five years) of a corporate integrity agreement for acts committed under prior administrations during the 1990s. The County was experiencing population growth, and desired to find a strong operator for the Hospital. In addition, a local community faction objected to the proposed sale of the Hospital.
The board's vision for the hospital was to continue serving the eastern part of the county and repay the debt on the facility.
Our review of the hospital's operations identified value in their home health operations and a renal dialysis center which could be monetized separately. Ultimately, the hospital was sold in its entirety but our analysis caused the buyer to focus on unique value components.
After reviewing the historical and current financial statements, we began a dialogue with the independent auditors on our findings in the financial statements of the hospital. The result was a restatement of and corrections to the most recent year's financial statements prior to issuance, as well as adjustments to the current period's internal financial statements. This initial assessment paved the way for a cleaner due diligence process. The work included the simple reconciliation of accounts and resolution of almost one million dollars of credit balances. More than half of the credit balances were improperly posted contractual adjustments which had resulted in an understatement of the hospital's income.
We began by defining the specific improvements that management was currently undertaking and that a strong operating partner would implement. These improvements included staff reductions, closing the clinics with negative cash flow, improving the operations of the new geriatric psychology unity, the impact of the 2008 Medicare reimbursement changes, and conversion away from the state sponsored retirement plan. We then quantified these improvements using our in-depth knowledge of healthcare operations.
Next, we researched the universe of potential buyers, and contacted a targeted group of the most-likely 20 buyers. We presented the buyers with an option to purchase Woods’ home health and dialysis centers with the Hospital or separately, as we knew that various buyers might see different values to these three different businesses.
We coordinated visits with eight interested parties, which resulted in four formal proposals. We aided the due diligence process including obtaining Tennessee Attorney General and County Commission Approval for the purchasers and resolving the County’s use of proceeds. One proposal from a joint-venture between a hospital management company and local physicians met the County’s goals and netted the community a significant positive amount.
Working with the hospital board, medical staff and county commission, we were able to successfully sell the hospital, preserving access for the community.
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