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Florida hospital deal hinges on a single issue: Should CHS pay up if things go south?

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Franklin, Tenn.-based Community Health Systems signed a definitive agreement in April to sell the lease to operate Ocala, Fla.-based Munroe Regional Medical Center to a subsidiary of Altamonte Springs, Fla.-based Adventist Health System. The parties want to close the transaction by July 31, but the deal recently hit a speed bump.

Under the deal, Florida Hospital Ocala would assume the long-term lease and operations of 421-bed Munroe Regional. The Marion County Hospital District, which oversees and enforces the lease for the county-owned hospital, voted unanimously June 18 to accept the deal, contingent on Florida Hospital agreeing to outstanding upgrades and additions to the hospital, which were part of the 40-year lease CHS signed in 2014. The board also wants CHS to remain financially responsible for the remainder of the term of the lease, according to the Ocala Star-Banner.

Although Adventist would also be on the hook financially if the deal closes, the board argues CHS bears ultimate financial responsibility because it is the original leaseholder. Adventist and CHS disagree.

Lawyers told the board June 25 that Adventist and CHS are unwilling to keep CHS on the lease as guarantor. In response, the hospital district board proposed a compromise. The board will request CHS take a secondary guarantor position only if Florida Hospital fails to perform its obligations and only for the roughly $131 million still due in capital expenditures under the original lease. The board will also ask that CHS' guarantor role end after five years, when the upgrades and additions to the hospital under the original lease are due, according to the report.

"I get why CHS does not want to be on the lease," Sam McConnell, a board of trustees member, told the Ocala Banner-Star. "I personally understand they want to move on with this. ... To me, it's only fair that they stay on the hook for that capital expenditure until that capital expenditure is done. That, to me, is a fair request."

Mr. McConnell said the board is trying to shield the hospital from any potential financial troubles that could arise. He said Florida Hospital is in a better financial position than CHS, but keeping both organizations on the lease as guarantors is the best way to ensure the upgrades and expansions promised under the original lease are completed.

The board will present the compromise to CHS and Florida Hospital for their response. The board will discuss the agreement again at their next meeting on July 30.

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