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Physicians group defends $2.4B offer for Lutheran Health Network

A physician group sought support from community leaders, residents and physicians May 31 to transition Fort Wayne, Ind.-based Lutheran Health Network out of Franklin, Tenn.-based Community Health Systems' ownership, according to the News-Sentinel.

A source close to the physician group told the News-Sentinel the public's support "can help apply pressure" on CHS to sell the eight-hospital health system.

CHS previously dismissed the group's offer, stating the proposed $2.4 billion price tag was insufficient by about $1 billion. CHS officials also said the group never identified a qualified buyer and its members never signed a nondisclosure agreement to prevent the sharing of sensitive information regarding the transaction, according to the report.

The source said the $2.4 billion represented a fair offer and amounted to nearly 10.4 times more than Lutheran's earnings before interest, taxes, depreciation and amortization, according to the report. The group also agreed to sign a revised version of the initial nondisclosure agreement until CHS officials increased the sale price to 12 times the amount they had initially agreed to sell the health system for, the report states. The source also claimed CHS officials were aware of the identities and financial capabilities of the parties represented by the physician group, and the parties are still interested in purchasing Lutheran despite CHS' decision.

Ultimately, CHS' dismissal of the offer reinforces the physician group's belief that the for-profit operator is no longer able or willing to provide the assistance the health system needs in order to remain competitive, the source said. Despite CHS' promise to spend $500 million in capital improvements on the health system, the source said much of that money is already earmarked for specific endeavors and will not be used toward staffing or salary needs, according to the report.

"The doctors are great but it's a dirty, dingy hospital," Chuck Surack, the owner of a music retailer in Fort Wayne who is contracted to bring his 1,500 employees to Lutheran for medical care, told Bloomberg. "[CHS] doesn't invest in the facilities."

However, CHS officials claim the group's dissatisfaction with the for-profit operator came out of relative thin air. In a May 22 letter to Lutheran employees cited by Bloomberg, Wayne Smith, chairman of the board and CEO of CHS, and Tim Hingtgen, president and COO of CHS, said: "Frankly, we were surprised by some of the [physician group's] concerns. We believed things were going well, based on reports we received from [Lutheran's] market and division leadership."

More articles on transactions and valuations:
CHS to divest 5 hospitals to Reading Health System
13 recent hospital transactions and partnerships
CoxHealth, Citizens Memorial Hospital call off affiliation plans

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