Here's how Columbus Regional gave up local control — and why it chose Piedmont

The sign at the top of what was once the Midtown Medical Center tells the story, one of change and long-term survival.

The sign simply reads, “Piedmont.”

Piedmont Healthcare, the growing Atlanta-based health-care organization has added Columbus Regional and its entities — the Medical Center, Northside Hospital off Veterans Parkway, Spring Harbor, a north Columbus retirement community and the Columbus Regional employee-physician group — to its fold, which includes hospitals in and around Atlanta, and in Athens.

The merger has been more than 10 months in the making and is part of a process that Columbus Regional board members and executives have been actively exploring for more than three years. The change took place at 12:01 a.m. and was celebrated during a morning ceremony on the Medical Center campus attended by more than 300 employees from Columbus and other Piedmont hospitals.

The first thing that patients will notice is the name change. The sign atop the Medical Center is bold and telling. The Medical Center will be known as Piedmont Columbus Regional-Midtown Campus, and the former Hughston Hospital will be called Piedmont Columbus Regional-Northside Campus.

This is the second Columbus hospital to go from complete local control in the last three years. Facing bankruptcy because of financial mismanagement, St. Francis was sold to LifePoint Health of Tennessee on Dec. 31, 2015, putting the formerly non-profit hospital under the control of a for-profit health-care provider.

The Columbus Regional deal with Piedmont is a far different situation. While the St. Francis sale was the business version of a shotgun wedding, this was a carefully planned transaction and marriage.

Here’s how it happened:

In January, Warren Steele, a retired Aflac executive and the chairman of the board for Columbus Regional Health, went step by step through the process during a public hearing held by the Georgia Attorney General’s office, which approved the deal last week.

Steele has been in the volunteer position since 2014 and has been at the helm of this entire process, along with Columbus Regional Preisdent and CEO Scott Hill.

The road to this merger started back in 2012, Steele said.

Former Columbus Regional President and Chief Executive Officer Chuck Stark was the first to bring up the subject of a partnership or merger when Steele was chairman of the board’s Finance and Planning Committee. The organization was beginning to identify financial challenges related to a cut in reimbursements from government payers and they had uncovered issues with reserve funds.

In the fall of 2015, Steele asked the Columbus Regional chief financial officer to produce a five-year financial plan. An outside firm, Kaufman Hall & Associates of Illinois, was hired to formulate the plan.

“What we saw was there were a lot of negative trends at that time,” Steele said. “Expectations on hospital admissions was going to be declining, the push was to get more people outside the hospitals to get their treatment and we didn’t have a very strong strategy for kind of retail or ambulatory strategy.”

In the wake of that presentation, the Columbus Regional Board established a long-range planning committee at the end of 2015: Dr. Shane Darrah, a Columbus cardiologist; Max Brabson, a retired Synovus executive; Jack Pezold, a Columbus businessman; John Dale Hester, a TSYS executive; and Steele.

In early 2016, the committee went to school on the health-care industry, the trends toward mergers and the reasons for that.

“We learned a lot about the different types of hospital affiliations and reviewed our matrix again,” Steele said. “We looked in detail what it would take for us to remain independent and what we needed to do as a system to implement some of these new things that were happening in the health-care market place.”

They also did a self-analysis on Columbus Regional’s mission and hired Alston & Bird, a law firm headquartered in Atlanta.

“We had to be diligent in making our strategic decision; we had to understand the impact of our decision; and we had to look hard at the options and avenues before us and what would a partnership look like,” Steele said. “The most important thing in any business transactions, we had to make sure we were getting fair value for our assets.”

In the end, Steele said, it boiled down to this question: Do we have the financial means necessary to remain independent?

Easy question. Harder answer.

Several members of the Columbus Regional board wanted to remain independent and that desire grew as the organization returned to profitability, Steele said.

“I told Scott Hill, our CEO, that the financial turnaround was so successful that he was making it harder for us to want to seek a partner,” Steele said. “People on the board were saying, ‘We are doing great now. Why do we need to partner?’”

But the financial turnaround put them in a better position to benefit from a merger, Steele said.

“Some said, ‘Why don’t we just put this off until later?’” he said. “... The conclusion we came to was when you are in a good position financially is the time to time to look for a partner because that is when you have the best bargaining power. It is not when you are distressed or struggling.”

Long-term stability was the reason to push through the process toward a merger, Steele said. Columbus Regional held more than $280 million in debt from the acquisition of Doctor’s Hospital, which has now been folded into the Medical Center, and the Hughston Hospital, which is now Northside Hospital.

“The goal was to be sustainable,” Steele said. “... What we did was look at what we needed to do as an organization to remain sustainable.”

After what Steele called “a lot of internal soul searching,” the planning committee recommended in May 2016 a process to hire a consultant to assist Columbus Regional in exploring possible strategic partners. Kaufman Hall was again retained to help work through that process. Many of the companies that bid for the work had fee structures tied to the financial terms of a possible deal. Not Kaufman Hall, Steele said.

“Kaufman Hall said specifically, ‘If you stay independent that’s an OK result of this process,” Steele said. “The process is not to say you will find a partner. This process is to say, ‘What is the best thing for Columbus Regional and the community?’”

Steele said three positive factors became obvious as Columbus Regional moved through the process of looking for a partner:

▪  Columbus was considered a good Georgia market and its proximity to Atlanta was useful.

▪  The financial turnaround put Columbus Regional in a position of strength when it came to courting a new partner.

▪  The organization had a strong medical staff and patient care ratings were on the rise.

The primary possibilities were merging with a for-profit hospital system, which was quickly ruled out; undergoing a strategic regional alignment with other south Georgia hospital systems; or looking for a larger non-profit system.

“We wanted someone who saw the world the same way we did,” Steele said. “We are a safety-care provider and take care of the indigent. And we needed someone with operational capability.”

In fall 2016, Columbus Regional sent out 13 requests to entities they would like to partner with, Steele said. Most of those were in the Southeast United States. There were six that responded and Columbus Regional narrowed the list to four, which have not been named.

Representatives from all four companies came to Columbus and presented their plans. That resulted in one being cut. At that point, Columbus Regional traveled to the headquarters of the remaining three as well as hospitals that had merged with the systems.

“After we visited, there was not a clear finalist,” Steele said. “All three were very capable.”

In May 2017, the three finalist were invited to the Columbus Regional board retreat at Callaway Gardens in Pine Mountain. The three organizations made presentations to the board, Columbus Regional senior executive leadership and senior medical leadership.

The next day, a Saturday, a decision was made in executive session.

The first discussion was whether Columbus Regional wanted to partner or stay independent. The vote was unanimous to partner.

Steele said the next discussion and vote were not as clear cut: who they would partner with.

“It was not an easy decision,” Steele said. “They all made similar capital commitments. In some cases, Piedmont was better than the others. But in some cases, the other potential partners scored higher.”

The decision to partner with Piedmont was a process, Steele said.

“When I went into that meeting on Saturday morning, I would not have bet that Piedmont would have been the choice. I didn’t know what the choice would have been but I would not have picked Piedmont initially.”

But it was no surprise that Piedmont was fiercely interested in Columbus. In 2015, Piedmont was one of the original candidates to purchase St. Francis, but backed away from the deal after a due-diligence process.

There were several factors that led to the selection of Piedmont, Steele said.

For one thing, the other two finalists were out of state.

“It was intriguing to be considered an outpost for an out-of-state partner,” Steele said. “There out-of-state systems talk about regional strength. ... The idea would be able to expand health care in Georgia with us as the means of doing that. We discussed then that is really not our mission, which is to improve the health of the people in this community. It is not our mission to expand outside this community.”

When it came time to strike a deal, Piedmont stepped to the table with cash and promises of capital improvements that will strengthen Columbus Regional, Steele said.

Piedmont has agreed to assume the $280 million in debt that Columbus Regional is carrying.

In addition to picking up the debt, Piedmont will invest $250 million in capital expenditures over the next eight years. Piedmont has also committed to spend between $30 million and $50 million to install a new electronic medical records system for the Columbus facilities.

It is not all about the money, Hill said in January.

“This investment they are making into Columbus Regional and the Columbus community is about growing our healthcare services,” Hill said. “And growing what we do from a programmatic perspective, growing what we are doing from a clinical perspective, and growing what we do from a strategic perspective.”

Steele is confident that Columbus Regional board members and the executive team have made the right decision to join the Piedmont system.

“We absolutely feel they have the same goal we do, to improve the health in the communities they serve,” Steele said. “Piedmont is a patient-centered health-care organization and we are, too. It is not just about the numbers and financing, it’s about patients.”

When people ask Steele about this decision, he gives a concrete example of why it is happening now.

“At Columbus Regional, we have a nurse-to-patient ratio of about 1-to-7,” Steele said. “The goal in our budget is to try and have a nurse-to-patient ratio of about 1-to-6. Piedmont’s goal, their plan, is a nurse-to-patient ratio of 1-to-5. When people in the community ask me why this is good for Columbus, I say when you think about taking two more patients off the nurse, not only do you improve the quality of care for that patient, there is probably a better outcome and they can spend more time with the patient.

“But it also helps the nurses. They’ll do a better job. That’s just one example. ... There is a nursing shortage. We struggle to keep quality nursing and Piedmont will help with that.”

Dr. Harry M. McFarling, III, an Atlanta OB/GYN physician who is outgoing chairman of the Piedmont Healthcare board, praised Steele for his work through the process.

“The first thing I want you to know is that Warren Steele, your volunteer chair of the board down here over the last year and a half that I have gotten to know, has just done an unbelievably servant-led process of leading the board with Scott in the discernment process.”

Piedmont System President and CEO Kevin Brown predicted big things with Columbus Regional now in the Piedmont family, that grew to 10 hospitals with the addition of the two Columbus properties.

“We are here to take care of patients. server our community and serve our patients,” Brown said. “And together, we are going to do it better. Columbus Regional is going to help our system get stronger and I think Piedmont will help serve the midwest Georgia region even better.”

Brown acknowledged that Piedmont was chosen through a lengthy process that required trust from the Columbus side.

“We know that there were a lot of opportunities for others to be in this position,” Brown said. “It is with great great gratitude that we are here. Together, the two organizations have about 300 years of experience serving the communities in Georgia. You take that knowledge, that background and that talent and put it together and there is no doubt we are going to have great success.”

On Thursday during the ceremony with the deal sealed, Steele said the merger would also benefit Piedmont in a big way.

“I believe Columbus Regional is going to add value to your system,” Hill said. “And absolutely believe Piedmont is going to add a lot of value to health care in this community. They are the best absolutely partner we could find.”

This story was originally published March 1, 2018 at 8:39 AM with the headline "Here's how Columbus Regional gave up local control — and why it chose Piedmont."