VHS Releases Sales Agreement

Press-EnterprisePatrons of Valley Health System are expected to go to the polls Nov. 6 to approve the proposed sale of assets of the district, which operates hospitals in Hemet, Sun City and Moreno Valley.

More than a month after agreeing to sell to a San Diego County-based hospital development group, the Valley Health board on Monday released the proposed asset-sale agreement.

A special board meeting is scheduled for 6 p.m. Wednesday on the second floor of the Hemet Public Library for the board to discuss and vote on the agreement and issue a resolution calling for a public vote.

Select HealthCare Solutions, of Del Mar, wants to buy substantially all the district’s assets, including Hemet Valley Medical Center, Menifee Valley Medical Center and Moreno Valley Community Hospital. A simple majority of votes is needed for the sale to be approved.

The proposed sale agreement, more than 100 pages long, addresses various areas of the sale, from the purchase price to the future of the hospital district once the sale is completed and role that the district’s key partner, Dr. Kali P. Chaudhuri, would have in the future of the hospitals.

“We’ve tried our very best to cover everything and protect the community,” said Patrick Searl, chairman of the Valley Health board. He said the proposed sale agreement tried to anticipate and address any questions about the sale.

Among the provisions of the proposed sale agreement:

The purchase price is set at $135 million and includes substantially all the district’s assets, including the three hospitals; Hemet Valley HealthCare Center, a skilled nursing facility; and the Medical Arts office building in Hemet.

Select would make a deposit of $14 million, which would be used for operating capital and to meet obligations, once the board approved the agreement. Of that amount, $9 million would be nonrefundable if Select did not complete the transaction, including if the voters did not approve the sale.

If voters do not approve the sale, Select will buy Moreno Valley Community Hospital for $47 million, with the $14 million deposit credited to the purchase price. If Select fails to close the purchase on that hospital, then Valley Health will retain the entire $14 million deposit.

Valley Health System would continue to exist as a local health care district, which would provide community health services similar to those provided by other districts that no longer operate hospitals.

Valley Health would terminate the existing contract with the hospital-management company. A nationally recognized independent management company unaffiliated with the current management would be hired to manage the hospitals. Chaudhuri, chairman of the current hospital-management company, and his affiliates would be allowed to have a role in the new management for at least five years, and they would be having voting control over the new hospital operations for at least five years.

Searl said the sale to Select HealthCare was the best hope for the hospital district, which he said was “undercapitalized” and losing about $12 million a year.

“I believe it is Valley Health System’s only chance to keep the hospitals open,” he said.

Searl said the provisions concerning Chaudhuri were placed in the contract to address head-on any concerns about the controversial manager of the hospitals.

“This was pretty much asked by the public,” said Searl, who said disengagement with Chaudhuri was the only way to assure voter support for the sale. “These provisions were needed because of the political reality.”

But some critics remain unimpressed.

Chaudhuri “is one of the smartest businessmen I’ve ever met,” said Clyde Osborn Sr., a former hospital district board member defeated in his bid to win a hospital board post last year. “He will appear again.”

Chaudhuri, with the district, co-owns Valley Health Care Management Services LLC, which handles the district’s operations. Chaudhuri ‘s 15-year management contract with the district expires in 2013, but the board has sent Chaudhuri a notice of termination, alleging that revenue targets were not met. Chaudhuri has said he will step away without a fight if the sale to Select is completed, but he has reserved the right to question the termination notice in the future.

Contacted Monday, Chaudhuri said he has not yet seen the proposed sale agreement, but he also said he’s satisfied with the provisions concerning him that were read over the phone by a reporter.

“I have no ulterior motive,” he said. “I’m doing this willingly. This way I hope the hospital will survive. … If I didn’t do it, the hospital could end up like other hospitals in Southern California that have closed down.”

He said he wants the hospitals to remain open because he, too, lives in the community.

Select HealthCare President Matthew Cutler said the thoroughness of the proposed sale agreement should quiet what he described as “a vocal majority” opposed to the sale.

He said he has previously disclosed his funding partners, including Southern Co./Healthcare REIT in Indianapolis; Capital Source, a Bethesda, Md., health care financing company; and the physicians’ groups in Hemet and Menifee.

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