Private Tennessee-based firm Capella Healthcare reported March 28 to the U.S. Securities and Exchange Commission that it sold Jacksonville's hospital Dec. 31 for $6 million, an approximately $6.7 million loss for the company. Calhoun County Revenue Commission records show the hospital, now named RMC Jacksonville, is valued at approximately $9.8 million. It's a deal RMC officials say was well worth the cost and helps ensure financial stability for RMC while improving medical care for the community.
The information release comes about a month after Anniston-based RMC filed a lawsuit against Consolidated Publishing Co., which owns The Star, seeking to block the newspaper’s requests for the Jacksonville hospital's purchase price. Both parties have tentatively agreed to drop litigation against each other due to the release of the information.
"With this public knowledge being out there, there will be no need for litigation with The Anniston Star," said Greg Kernion, chairman of RMC’s board of directors.
RMC had argued that it could not release the purchase price due to a confidentiality agreement it signed with Capella. The Star, however, argued that since RMC is a nonprofit with a board appointed by government entities, it is subject to state open records law.
"We have maintained all along that the purchase price of this hospital is a matter of public interest," said Bob Davis, editor and associate publisher of The Star. "We think that the public is well served to know about this transaction."
Beth Wright, spokeswoman for Capella, said the SEC records were correct.
"We were pleased to be able to work with Regional Medical Center on this transition because we believed them to be the best possible partner for RMC Jacksonville's long-term success," Wright said. "Every hospital, even great ones like RMC Jacksonville, must continue seeking new ways to improve access and quality while lowering costs for their communities."
John Blue, an RMC board member, said discussions about the deal began more than three years ago while he was chairman of the board. Capella first approached the board to purchase RMC, Blue said.
"I said RMC was not for sale," Blue said. "Strategically, the board had committed to a growth plan ... I told them we would be interested in beginning a dialog about purchasing the Jacksonville hospital."
Kernion said just from a financial standpoint, the purchase was a good deal that RMC wanted to talk about, but was advised by legal counsel not to due to the confidentiality agreement. Beyond the price itself however, the purchase was a good deal because of what it means for RMC's continued financial success and medical care for the community, Kernion said.
"Sometimes you've got to spend money to make money," Kernion said. "What we need is a larger piece of the pie to serve more people more efficiently and to make our bottom line."
Many Alabama hospitals that rely heavily on Medicare, like RMC, have seen their revenue streams diminish over the years because the federal government bases reimbursement amounts on the wage index. The wage index is based on hospitals' cost reports and is used to adjust payments in the system — the lower the index number, the lower the reimbursement. According to federal figures, Alabama has one of the lowest wage indexes in the country, meaning less financial reimbursement for services than other states.
"We're getting paid less per person, so we need more patients to make up the overall cost," Kernion said.
In keeping with RMC's plans to expand its influence across the five-county area, the hospital has added services in Talladega with a health clinic and is launching a clinic in Randolph County. Kernion said RMC's increased presence in the region means more residents will likely visit the hospital for care rather than go to Gadsden or Birmingham.
Wright said the reimbursement situation in Alabama was the main reason Capella had difficulty keeping the Jacksonville hospital profitable and ultimately led to the decision to sell it. The report Capella filed with the SEC shows the company also sold two other Alabama hospitals, including Decatur's Parkway Medical Center in 2011 at a $6.7 million loss and the Hartselle Medical Center in Hartselle in 2012 for a $5.3 million loss.
"Providers must have considerable size to thrive, particularly in Alabama, since it has one of the toughest reimbursement environments in the nation," Wright said. "The loss we experienced was a direct reflection of the continued declining reimbursement in the state, which is impacting every hospital but is especially affecting smaller, rural, stand-alone facilities."
Wright added that it is the reimbursement problem along with demands from health care reform that are driving hospitals in communities like Jacksonville to partner with larger regional systems.
Rosemary Blackmon, vice president of the Alabama Hospital Association, agreed with Wright, saying profit margins for Alabama hospitals are very slim.
"Hospitals are looking to be more efficient and for ways to grow revenue," Blackmon said. "A lot of times when you have a system of providers linked together, they have better coordinated care, which increases efficiency."
David McCormack, CEO of RMC, said the purchase of the Jacksonville hospital will improve overall medical care in the community.
"Keeping that medical center open and a viable center is important ... we'll bring some of our systems to them and continue to provide that good care," McCormack said.
Staff writer Patrick McCreless: 256-235-3561. On Twitter @PMcCreless_Star.