In the fall of 2019, Stroudwater was asked to advise Tyrone Hospital (TH), a 25-bed Pennsylvania CAH, in an affiliation process with a larger healthcare system. Tyrone Hospital CEO Anna M. Anna sought an expedited affiliation process for her board because they had already engaged in conversations, including an exclusive Letter of Intent (LOI), with their proposed partner. After Stroudwater was engaged, it became clear that the proposed partner did not understand the value of a rural affiliate; the proposed partner appeared keen on eliminating services essential to maintaining TH’s Critical Access Hospital status and licensure.
Once the term of the LOI had expired, Stroudwater and TH sought proposals from a range of prospective partners, including the previous proposed affiliation partner. Timing was of the essence with concerns about the short-term cash needs of the hospital. Several proposals were received, including a proposal from the previous favorite affiliation option. Stroudwater and the Board evaluated the proposals and prospective partners and negotiated clarifications and improvements.
Despite continued efforts to quantify and demonstrate the value proposition of a Critical Access Hospital affiliate to the previously selected affiliation partner, that prospective partner was never able to develop a detailed proposal that reflected the inherent value of a CAH as a care delivery platform. Fortunately, other interested parties were able to integrate these concepts into their proposals. During this process, Penn Highlands Healthcare (PHH) was vetted by Stroudwater and brought expertise operating Critical Access Hospitals to the table. PHH understood the value of a CAH affiliate to a multi-hospital system. PHH was confident that it could enhance the operating results at TH by adding needed services and addressing critical deferred investment issues.
When it comes to crafting affiliations, timing is a critical factor. Delays can allow unexpected issues to arise. Even with the speedy selection of an appropriate partner, the threat of the COVID-19 pandemic was an unanticipated challenge. Further complicating matters, an outstanding lawsuit from a prior billing vendor had to be settled prior to closing. Both events were unexpected at the outset of the affiliation process in the fall of 2019, and both threatened to significantly delay or possibly prevent completion of the affiliation. However, had Tyrone not taken the time to explore its affiliation options, they might either have failed to consummate an affiliation with their prior preferred partner or have completed an affiliation with a partner who did not understand TH’s value to the system. The result would have been a loss of services, ongoing lack of investment, and a degraded local healthcare delivery system for the residents of TH’s service area.
With Stroudwater’s help, TH selected a preferred partner four months after starting its affiliation process. After due diligence, crafting of definitive agreements and regulatory reviews – all completed during the pandemic – our client emerged with a stronger partner who had more expertise in operating rural hospitals and who created more community benefit via greater investment and new services. As Anna notes, “we have received so much support from PHH, and they have been very open to listening to our thoughts and concerns. Can’t imagine how we would have survived through COVID without some kind of support.”
Stroudwater was able to simplify the affiliation process and tailor it to the specific needs of TH without compromising the required rapid pace. If the process had not been competitive and open to other potential partners, TH may have selected a frontrunner who was inappropriate for their community. Anna states, “we really needed the expertise that the Stroudwater team brought to us to achieve the goal that we set out to accomplish…it calmed our fear knowing that Stroudwater was an expert in what they were doing so we could focus on other issues going on within the hospital.”
Stroudwater has extensive experience with managing the unexpected when it comes to affiliations. We understand that timing is an essential ingredient to a successful affiliation. However, it is critical to balance moving the process forward with allowing our clients time to vet affiliation options. This approach is critical to selecting the right partner and set of affiliation terms for clients’ communities. TH and PHH signed an LOI in early March of 2020, survived the COVID-19 surge, and reached a settlement with the lawsuit that allowed them to close on their affiliation on November 1st of 2020, 12 months after TH started their search for an affiliation partner. Stroudwater was able to help TH find a partner who truly understands TH’s value, all the while weathering unique and unprecedented circumstances.