Hutcheson, Erlanger cut ties; Georgia hospital allowed time to repay $20 million loan

Hutcheson, Erlanger cut ties; Georgia hospital allowed time to repay $20 million loan

August 21st, 2013 by Kate Harrison Belz , Tim Omarzu in Local Regional News

Hutcheson Medical Center

Photo by Doug Strickland/Times Free Press.

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POLL: Is Hutcheson's board doing the right thing?

Chad Young

Hutcheson Medical Center plans to part ways with Chattanooga-based Erlanger Health System.

"We're breaking up, but we're still going to be friends," said Chad Young, attorney for Catoosa County, Ga.

A management team from Erlanger led by CEO Roger Forgey has run the Fort Oglethorpe hospital under an April 2011 agreement.

But officials from Hutcheson's board of directors met for about four hours in closed session Monday night and then announced Tuesday afternoon that the two hospital systems were negotiating to end their partnership -- though Erlanger officials said they were only made aware of the board's latest decision after a news release went out.

"The management agreement has not met the expectations of Hutcheson's Board of Directors or the leaders of Walker, Dade and Catoosa counties," Hutcheson Medical Center's board Chairman Corky Jewell said in the news release. "A continuation of the agreement would not add value to the hospital."

Jewell's statements contrast with the enthusiasm of a June 27 meeting at which officials from both hospitals applauded and praised a proposed agreement for Erlanger to lease Hutcheson for 30 years. That proposal died quietly on the Aug. 9 deadline.

Hutcheson officials haven't said why the long-term lease with Erlanger failed, though Erlanger CEO Kevin Spiegel has said that a recent fair market value analysis of Hutcheson changed the terms of Erlanger's proposal. The price Erlanger was willing to pay was the price needed to generate a profit, but the proposal did not satisfy all of Hutcheson's debt, he said.

Meanwhile, Erlanger said it wasn't made aware of Hutcheson's call to "break up" until after it was public. Spiegel said the news took him surprise while he was on his way to observe a surgery.

"No, I was not aware of this decision," he said Tuesday afternoon, adding that he had not yet spoken with Jewell or any of Hutcheson's board members since their decision.

But if there is frustration on Erlanger's part, Spiegel hasn't yet indicated it.

"I think this is a good process they're going through," he said. "We will support the [Hutcheson] board any way shape or form we can during this transition."

Erlanger Health System CEO Kevin Spiegel

Photo by Staff File Photo/Times Free Press.

He also hinted that the possibility for a partnership between the two hospitals is still alive. Erlanger still has first right of refusal for a potential agreement after Hutcheson collects bids.

"I think the bidding will bring the true market value to the table," he said.

Spiegel said he did not know what specifics Jewell was referring to when he said the agreement "has not met the expectations of Hutcheson," adding that the fair market value assessment spelled out Hutcheson's financial improvements since Erlanger has taken the helm.

Hutcheson's decision also raises questions about the $20 million Erlanger loaned Hutcheson under the management agreement. The debt's repayment is guaranteed by Walker and Catoosa counties. Originally, that $20 million would become due and payable immediately, if Hutcheson terminated its agreement with Erlanger.

But Young said the repayment date has been renegotiated to give Hutcheson more time to find a new partner.

"No, Erlanger's not going to come knocking on the door and say, 'Hey, pay us,'" Young said.

Officials from Dade, Walker and Catoosa counties are committed to financially supporting Hutcheson while the hospital seeks a different partner, he said.

"We're still backing the thing, still optimistic about finding a partner," Young said.

Ken Conner, of DeCosimo Certified Public Accountants, is working on a request for proposals. It's being expedited, and Hutcheson will meet with interested parties in the next two weeks, the news release states.

Conner, who's a former chief financial officer at Erlanger, has contacts in the hospital industry that should help Hutcheson get the word out, Young said.

"We're going to cast as wide a net as possible," Young said. "My understanding is they're getting the word out to anybody and everybody."

Meanwhile, it is still unclear whether Forgey and other members of the management team will continue to oversee Hutcheson operations.

Contact Tim Omarzu at tomarzu@timesfreepress.com or 423-757-6651.

Contact Kate Harrison at kharrison@timesfreepress.com or 423-757-6673.