University, MedStar Agree to Hospital Sale

Principle Terms of Partnership Settled; Georgetown to Tackle Outstanding Debt

By Tim Haggerty Hoya Staff Writer

Looking to end years of increasing financial losses, the Medical Center has announced a partnership agreement with a local non-profit health care company, hoping to complete the deal by July. Under the terms of the agreement, the university would sell a controlling interest in the hospital and clinical network.

For the last year, Georgetown and MedStar Health have been in exclusive negotiations working toward a partnership under which edStar would operate the Med Center clinical enterprises. Since fiscal year 1997, the Med Center has reported increasing losses of $57 million, $63 million and $83 million. Med Center officials attributed the increasing losses to the growth of managed care.

Last Friday, the Georgetown University board of directors approved the transaction document, which calls for Georgetown University Hospital, the Community Practice Network and clinical practice activities of the Faculty Practice Group to be operated as part of the MedStar system, relieving the university of the financial burden. The asset purchase agreement calls for an up-front payment large enough to retire the current debt on the facility.

With its acquisition of the hospital, MedStar Health will add 250 physicians and approximately 3,500 employees to its current rosters, which would give them control of 4,600 physicians and over 22,000 employees serving over a million patients each year. edStar’s current facilities, include six Baltimore and Washington area hospitals including the Washington Hospital Center. The company, based in Columbia, Md., reported assets of $2.01 billion, operating revenues of $1.85 billion and a payroll of $980 million for the fiscal year that ended in June.

University and MedStar officials said that the deal will benefit both institutions. “The agreement meets Georgetown’s three essential requirements in that it preserves our academic quality, supports our Catholic and Jesuit identity and makes sound financial sense,” University President Leo J. O’Donovan, S.J.

The academic affiliation agreement calls for the university to retain control of the research and academic branches of the Med Center. The hospital will remain a training site for the Schools of Nursing and Medicine. Under the partnership, MedStar’s six other area hospitals would become primary training sites as well.

The university will no longer be liable for the hospital’s losses, which have affected the entire university. In 1998, Moody’s Investor Services downgraded the university’s credit rating from A1 to A2 in response to the hospital’s slipping finances. Last year, the university was forced to borrow $100 million to cover building expenses when university reserve funds ran dry after being used to cover Med Center losses.

In addition, under the partnership hospital gain-sharing incentives could allow the university and faculty doctors to receive as much as $70 million total over the life of the agreement. The hospital will continue to operate under the Ethical and Religious Directives for Catholic Health Services, which ban abortions at the facility.

“This partnership . allows Georgetown to focus on world-class education and research,” said John R. Kennedy, chair of the university’s board of directors.

For MedStar, the partnership would mean that the overloaded Washington Hospital Center could send patients to empty beds at Georgetown. “The result will be a truly remarkable resource to the greater Baltimore-Washington metropolitan-area communities we serve,” said MedStar Health President and CEO John P. McDaniel. The patient base for the health system would be expanded into Georgetown.

MedStar would control the partnered entity’s board of directors, and McDaniel would join the university’s board of directors.

However, some aspects of the partnership remain unsettled. edStar will need to analyze services that overlap at the existing edStar facilities and at the hospital. The contractual status of hospital employees is not certain for when MedStar takes control of the hospital.

The next part of the agreement is expected to be released in arch. This agreement would involve the 50-year lease under which edStar would operate the hospital. Under the agreement, the Med Center will keep its name and remain open in its full 535-bed capacity. The other major element of the deal, the Community Practice Network, consists of outpatient clinics, acquired physicians’ practices and the Med Center’s home infusion business, which provides chemotherapy and antibiotics to patients in their homes. The hospital’s affiliates include over 1,000 primary care providers in the D.C. metropolitan area.

McDaniel said that the hospital is a perfect addition to the edStar System.

“For more than 150 years, the hospitals and health care providers that comprise our system have provided the very best in health care and community services to residents of the Washington-Baltimore region. The combination of services and shared values that these institutions place on the delivery of health care to the community makes MedStar Health and Georgetown ideal partners,” he said

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