By DENNIS J. WRIGHT

dwright@phoenixvillenews.com

PHOENIXVILLE - Pending final approval, the Phoenixville Hospital will be acquiring a new owner.

The University of Pennsylvania Health System (UPHS) has reached an agreement with the for-profit Community Health Systems (CHS), of Brentwood, Tenn., to pursue exclusive negotiations that will result in a change of ownership of Phoenixville Hospital from UPHS to a subsidiary of Community Health Systems, Inc.

According to Kevin B. Mahoney, executive director, the parties will seek to close the transaction by July 1, 2004, pending final approval of definitive agreements by each party's Board of Directors, and the approval of the sale by Phoenixville Community Health Foundation, the Orphan's Court of Chester County, the Pennsylvania Attorney General's Office, and the Federal Trade Commission.

"This has been an open and public process," said Mahoney. "We signed the letter of intent and all of the details still need to be negotiated. The Phoenixville Community Health Foundation needs to approve the sale and we anticipate they will on Friday, April 16th (today). We started this process with the letter of intent and there are still 75 more days of work to occur - more official steps to follow."

The agreement reached between UPHS and CHS is the culmination of an extensive evaluation process during which an ad hoc committee of representatives of Phoenixville Hospital, Phoenixville Health Care Corporation, UPHS and the community analyzed and discussed the future direction of the hospital, said Mahoney.

On Tuesday, the Phoenixville Hospital Board of Trustees approved the committee's recommendation to sell the hospital to CHS. On Wednesday, the Penn Medicine Executive Committee also approved the decision to move ahead with finalizing a sale to CHS.

A statement from Ralph W. Muller, chief executive officer, UPHS, said, "We are pleased to be working with Community Health Systems to sell this important community hospital to a very strong health care company with established links to the Phoenixville area. We look forward to maintaining and building upon our collaborative clinical relationships with Phoenixville Hospital and its medical staff."

Mahoney said the only change is with the administrative aspect with CHS, and that UPHS will still be involved on the clinical aspect.

"This is more like a partnership," said Mahoney. "UPHS will still be affiliated with their clinical programs, which will still continue - and they'll continue to grow with the input from CHS. This is a very positive development for the hospital and the community."

UPHS purchased the hospital back on July 1, 1997 and Mahoney said the hospital has maintained high quality care.

"We have always been successful and profitable, both pre-UPHS, during UPHS, and eventually post-UPHS," said Mahoney. "We are one of the few hospitals who make money that've been sold. Most hospitals sell because they are having problems. The hospital, for over a century, has been a valuable community facility. UPHS has made it a highly profitable community facility."

Mahoney said the immediate boom in area population has played an impact on the hospital.

"The growth in this community means the hospital needs to grow to maintain the population," said Mahoney. "We need money to serve these needs. This isn't a new thing. The hospital isn't big enough to support the community."

Mahoney said the hospital had approached UPHS about additional capital, but UPHS said it couldn't accommodate the request.

"Since 1997, the hospital has received $46,460,000 in cumulative capital spending under Penn Health Systems," said Mahoney. "We give them credit for being honest with us. We are profitable and would've stayed that way with them. They allowed us to start a process in finding other capital. During this time, the way to go was for a for-profit company. They have access to capital by offering stock, which the public buys and then re-invests. We didn't do this lightly. This has been close to a one-year, full-throttle process. During the beginning months, we had to decide where the hospital's vision was to be, to which we decided it was to grow. Then we had to decide how we were going to fund this vision. When the number reached over $100 million, we decided to seek a capital partner."

After reviewing five formal proposals and speaking with 11 entities, Mahoney said the decision to go with Community Health Systems, Inc., was based on their commitment to capital, which will be for over $100 million for six years, and their relationship with northern and western Chester County.

Community Health Systems, Inc., headquartered in Brentwood, TN, operates 72 hospitals in 22 states, including Pottstown Memorial Medical Center in Pottstown, and Brandywine Hospital in Coatesville.

"Another aspect that CHS is committed to is their physician recruitment," said Mahoney. "CHS has an excellent reputation in that respect. It is an area of expertise for them. We want high patient satisfaction from the community, which is the same with CHS. I want this hospital to grow and so does CHS."

Two issues Mahoney addressed immediately were the hospital's relationship with Pottstown Memorial Medical Center, and a possible replacement hospital for Phoenixville.

"Phoenixville and Pottstown are two distinct communities with two distinct hospitals; and the healthcare needs of these two communities will continue to be met by two separate facilities," said Mahoney. "We want to build on the 'tradition of caring' at each hospital, not close them. In terms of a replacement hospital for Phoenixville, no one can answer that question at this time. However, it's reasonable to expect that the new owner will undertake a strategic-planning process - involving input from administrative and medical representatives of Phoenixville Hospital and from the community. However, should it be determined that a replacement facility is required, it will be located in Phoenixville."

The first order of business upon the finalization of the sale, Mahoney said, is to hire a consultant to "validate the hospital's vision."

"In the future, we are going to hire a consultant who'll talk to community leaders, borough council, board members and medical staff," Mahoney said. "The consultant will help validate the vision we have for the hospital. The sentiment is not to abandon the building. We are confident that the community board will not allow this hospital to close. There is an openness to look at other types of facilities. We are looking to expanding the cancer center. We want to make sure jobs will still be here."

For that to happen, Mahoney said the meeting set for early this morning with the foundation is key.

"No decision has been made and there is a process to validate the vision," said Mahoney. "Our next step is to meet with the foundation. If they approve, they will receive compensation from the 1997 closing of the hospital sale to UPHS. There is an independent watcher of this process and that is the foundation. Again, everything is dependent on the foundation's approval - and I don't consider it a slam dunk."

Mahoney continued, "If the foundation says 'no,' then we'll continue the way we have been and deal with the constraints. We moved our dialysis to the Ambulatory Surgery Center in Limerick. We're getting too crowded and it's not the best for the community and our employees."

Mahoney said the hospital has had informational meetings with the employees about the potential sale.

"The employees are nervous, but they were that way when UPHS purchased us," said Mahoney. "All of the employees on the active payroll will be given jobs and maintain their seniority. They've worked hard and they'll keep what they've earned. In fact, we believe that through increased capital investment everyone's job security will be improved. CHS has committed to keeping all employees who are in good standing. CHS has committed to maintain base salaries and we anticipate that we will continue to achieve competitive pay and salaries in the suburban marketplace. They've been able to do their jobs during this process. We don't anticipate losing anyone, but it's their choice, whether for personal reasons or not. We are hoping that no one leaves us."

Mahoney said that tentative plans are to freeze the current hospital pension plan on June 30 with no additional contributions to be made.

"Employees will not lose the value earned in their current pension," he said. "They will receive their pension from UPHS when they become age-eligible. Beginning July 1st, all employees will be eligible for CHS' 401(K) plan."

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