Just three months before the parent company of St. Francis Hospital in Columbus announced in late July that it was being sold to a private equity firm in a deal valued at $5.6 billion, LifePoint Health’s top executive laid out to shareholders how tough conditions have become in the business of health care.
“The health-care industry is in the midst of what is arguably one of the most challenging operating environments that we have experienced,” LifePoint Health Chairman and Chief Executive Officer William F. Carpenter III said in an April 25 proxy filing with the U.S. Securities and Exchange Commission. The annual filing also details the compensation of top executives within the company.
“We are navigating a shifting payer mix, uncertainty in Washington, increasing consolidation of existing providers, a movement toward consumerism, in which our patients are exercising more choice in where and how they receive their care, and the entry of non-traditional providers into the health-care environment,” Carpenter said. “2017 was a difficult year for health-care providers. LifePoint was no exception and we did not achieve our financial performance expectations.”
Revenues did slip just over 1 percent to $6.3 billion in 2017, Brentwood, Tenn.-based LifePoint’s financial data show, while net income, or profit, fell more than 14 percent to $112.9 million. Through the first six months of this year, those percentage declines in revenues and profits have continued.
In the filing, which showed that Carpenter earned a pay and stock package of $13.6 million in 2017, which includes a base salary of just under $1.2 million, the CEO pointed to other factors in the slumping earnings. He noted hospitals the company purchased in 2014 and 2015 “performed according to plan.”
“The hospitals we acquired in 2016, however, did not improve at the pace we had expected, and this negatively impacted the financial performance of the company overall,” Carpenter said, although financial improvements did begin to materialize late in 2017.
St. Francis Hospital at 2122 Manchester Expressway was one of five hospitals bought by LifePoint Health in 2016, with the four others in South Carolina, according to additional SEC filings.
The publicly traded and for-profit LifePoint Health bought the private financially troubled St. Francis Hospital and took ownership on Jan. 1, 2016, in a deal valued at $242.5 million. At the time, the 376-bed facility had more than 2,500 employees and 300 physicians on hand treating patients in a service area of about 316,000 residents. About a year ago, St. Francis confirmed that 55 layoffs were taking place, with an undisclosed number of additional employees having their hours reduced.
Now, the 2,420 employees at St. Francis, which has 340 physicians on its medical staff, are waiting to see what the impact of the acquisition by RCCH Healthcare Partners, also headquartered in Brentwood, Tenn., will be on the city’s primary cardiac treatment hospital, which also has a women’s center and orthopedics facilities. RCCH is owned by New York-based Apollo Global Management, an equity firm with deep pockets and investments in a variety of businesses in several industries.
Katy Hedge, executive director of marketing and communications at St. Francis Hospital, said Friday that no further information, such as a date for the merger’s closing or impacts on the local operations and employees, has been released. That was echoed by Michelle Augusty, LifePoint’s vice president of communications.
“We are still early in the process and there is no additional information to share or updates about the merger beyond what has been reported in our public filings at the time of the announcement,” Augusty said via email.
Thus far, aside from the purchase price and the $65 per share that LifePoint’s shareholders will receive in the deal, which was unveiled July 23, all that is truly known is that the two combined hospital companies will take the LifePoint Health name, while Carpenter will be the CEO. Combined revenues will top $8 billion, the number of licensed beds will surpass 12,000, and the employee count will reach 60,000. There also will be 7,000 affiliated physicians.
The SEC filings connected to the major acquisition by Apollo do have some nuggets of information in them. For instance, John Bumpus, LifePoint’s chief administrative officer, directed management to stay in touch with employees during the period between the announcement and the purchase’s closing.
“Listen!!!!!!! Listen to the people for whom you are responsible,” he beseeched leaders at the company’s nearly 70 hospitals and other facilities in 22 states. “Do your best to keep people focused on the job at hand. Continuing to achieve the desired results remains most important.”
Bumpus also noted “there are more questions than answers right now,” and that staffer concerns about potential changes in pay and benefits would be addressed by human resources personnel, a process that could take at least a couple of months.
“No doubt there is lots to learn here and lots to do,” the executive said of the transition that will combine two large health-care companies. “While there may be a few things that occur sooner, we really don’t anticipate this effort beginning in any significant way until late August.”
Carpenter, in a separate filing the day of the announcement, also stressed to employees at St. Francis Hospital and elsewhere to keep their minds focused on helping patients and supporting their respective facilities and communities.
“While there are many reasons to be excited about this new chapter for our company, it is important that we not lose sight of our day-to-day priorities and responsibilities,” he said.
A question-and-answer section in the July 23 filing broached the subject of potential layoffs at some point and changes to employee salaries and benefits to include 401(k) programs. Again, the general answer for staffers is wait and see how everything unfolds.
“The size, scale and focus on growth for the new organization will be impactful for our patients, employees and partners,” the company said in the Q&A.
As for Apollo Global Management, LifePoint did not mince words in the Q&A, telling employees and doctors that the firm is a leading investment manager with plenty of experience in taking control of companies and expecting them to experience growth.
“Apollo takes a consistent, rigorous, value-oriented approach to its investments,” LifePoint said. “It gives its funds’ portfolio companies the flexibility to invest today in strategies that are expected to create value over time.”
Apollo manages nearly $250 billion in assets through its offices in major cities across the U.S. and around the world. That has included investments via leveraged buyouts, funding distressed assets, and making deals in industries that are consolidating and perhaps in need of corporate restructuring.
There are many names that the average consumer would not know, but there are a number of popular consumer brands that have required investment funding and management by Apollo and its subsidiaries. Those brands have included Chuck E. Cheese’s, Claire’s, Great Wolf Resorts, Harrah’s Entertainment, Jacuzzi Brands, Norwegian Cruise Line, Oceania Cruises and Realogy, the parent firm of Coldwell Banker, Century 21 and Sotheby’s.
LifePoint Health, in its Q&A, listed the benefits of its sale to Apollo Global Management and merger with RCCH Healthcare Partners.
“As a private company, and with Apollo’s support, we believe we will be even better positioned to serve our communities and ensure that our company continues to grow and thrive,” the Tennessee firm said.
Despite the required regulatory hurdles and shareholder approval of the acquisition, the odds of its completion would appear very good. That can be found in the penalty details baked into the merger agreement between LifePoint and RCCH.
If LifePoint were to find a better offer and seek termination of the current agreement, it would be forced to pay a termination fee between $40 million and $80 million, depending on the circumstances. Should RCCH breach the agreement, it would owe LifePoint just over $160 million.