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Wellmont to explore options for the future, possible affiliation with another system

Nathan Baker • Jan 9, 2014 at 7:38 PM

A major provider of health care in the region is making the way for a new partnership, driven by recent changes to the health care system.

Wellmont Health System CEO Denny DeNarvaez and board of directors Chairman Buddy Scott said Thursday that the board has begun a process to evaluate the possibility of aligning with another health system.

DeNarvaez stressed that the announcement isn’t a sign of financial instability at the seven-hospital not-for-profit, but said sweeping changes to the payment structure of the country’s health care system have driven systems nationwide to consider new partnerships.

“The current climate is the result of a complex set of challenges,” she told members of the media during a called news conference. “I’ve been in health care for many years, and I’ve never seen such a time of unprecedented and rapid change.”

As the implementation of reforms included in the Affordable Care Act steers providers away from the previous fee-for-service model and instead encourages efficiency, systems are seeking partnerships and mergers to share costs.

“As we decide to take this to the next phase, we’re going to be looking at the things we can’t do as independent entity — what can we do if we had a partner?” DeNarvaez said. “If we get to be a bigger size, it would improve our balance sheet, it would increase our (information technology) capability to implement electronic medical records. We don’t have a large population to take on many risks. So that’s what we’re searching for in a partner.”

With a debt load of $500 million and total revenue in 2011 of $736 million, the CEO said Wellmont’s balance sheet is “very healthy,” making it an opportune time for the system to seek a viable partner.

In October, citing decreased reimbursements from the federal government and lack of support from TennCare, lower patient volume and unreliable on-call coverage from physicians, the company closed the 70-bed Lee Regional Medical Center in Pennington Gap, Va.

DeNarvaez said health care industry financial advising firm Kaufman Hall was hired by the board in July to assess the company’s options and reported to the body in December with the recommendation to seek some sort of partnership or affiliation.

The closure of the community hospital was a day-to-day administrative decision, she said, and was not a result of, nor could it have been changed by the firm’s recommendation.

She added that there are currently no specific plans to close any of the system’s remaining facilities, but nothing is certain as the company forges new relationships.

Scott said the ideal partner for Wellmont would be another not-for-profit, but the board will not rule out a profit-driven merger.

A special committee formed by the board of unnamed former board members, community leaders and physicians will explore Wellmont’s options, including potential suitors, and have been asked to have a decision within the year, but Scott said there’s no rush for the decision.

“It’s more important to get it done right than to get it done quickly,” he said. “If it gets done more quickly, so much the better, but we’re not going to rush the process.”

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