BREAKING NEWS: BRHS board signs letter of intent with UHS; "due diligence" begins

Published 10:20 pm Wednesday, February 2, 2011

Contributing writer

The Beaufort Regional Health System’s Board of Commissioners on Tuesday signed a letter of intent with University Health Systems of Eastern North Carolina, the Daily News has learned.
The letter allows UHS to move forward with its inspection of the financial records and operations at BRHS — a process known as “due diligence” — in advance of signing a 30-year lease agreement for management of the local health-care system with the Beaufort County Board of Commissioners.
The 11-page letter and attached Summary of Transaction Terms was signed Jan. 31 by Dave C. McRae, chief executive officer of UHS and Feb. 1 by Alice Mills Sadler, chairman of the BRHS board.
As stipulated in the letter, the BRHS board and UHS will negotiate between now and April 29 to develop a final agreement for the management of the local health care system.
It also stipulates that UHS will pay an initial “lock-up fee” of $200,000 to BRHS and an additional payment of $100,000 30 days after UHS pays the initial fee and in the event that the county commissioners “do vote or have voted to affirm the proposed Transaction. . .each and every fifteen (15) days thereafter for the duration that the Lock Up Period remains in effect.” The agreement stipulates that the “lock-up fee” is included as part of the UHS pre-paid lease payment.
The letter and attached summary also outline the proposal made by UHS to the BRHS board. Included in that is the commitment by UHS to a minimum of $21 million in capital expenditures in the first five years of the lease, including conversion of the information system with electronic medical records, emergency department expansion and renovation, renovation of patient rooms, expansion or renovation of the Marion L. Shepard Cancer Center and annual normal capital expenditures.
It stipulates that, working with the local hospital and affiliated doctors’ practices, UHS will develop a strategic and financial plan in the first six months of the lease.
Roger Robertson, president of East Carolina Health, met with the BRHS management team Wednesday morning to discuss the due-diligence process and answer questions about the future management of the local health care system.
East Carolina Health is the UHS subsidiary that operates the system’s community hospitals.
These moves were announced in an e-mail message to BRHS staff members by Susan Gerard, BRHS chief executive officer.
A copy of that message was obtained by the Daily News on Wednesday morning.
“As we progress through this due diligence process, we will have representatives from UHS on-site over the next 30-45 days,” Gerard’s e-mail message reads. “They will likely be working throughout our health system learning about our operations and meeting our staff.”
Managers who attended the meeting with Robertson said privately that they were pleased with his presentation and relieved to be moving forward.
They said Robertson indicated that he hoped to have a signed lease with Beaufort County within the next 45 days.
They said he told BRHS administrators that UHS would, in the next few days, send money to help the local health system to meet its upcoming financial obligations.
While the agreement for the management of BRHS moves forward, the county commissioners continue their evaluation of the proposal for the lease of the health-care system’s real estate, according to County Manager Paul Spruill.
“The county has no objection to the two-party agreement that the letter of intent between UHS and the hospital authority represents. I understand the letter of intent to represented an expectation that both parties act in good faith as the due diligence process unfolds,” he said.  “The county government, however, still has the responsibility of studying and approving future documents for the underlying ground lease.”
In addition to discussions between lawyers representing the county and UHS over the next few weeks, the public will have the chance to comment, once again, on the offer by UHS to lease the local health-care system.
A public hearing is planned for 6:30 p.m. Feb. 9 at Beaufort County Community College.
The BRHS board has recommended to the county commissioners a 30-year lease of the local health system by UHS for $30 million with the option to buy the property for an additional $10 million at the end of that lease. The most recent offer by UHS is an increase of $12 million over its initial offer.
Ultimately, the county commissioners will decide whether to accept, amend or reject the BRHS board’s recommendation.