Randolph Health finds a buyer, county to pay $20M as part of the deal - North Carolina Health News
By Liora Engel-Smith
Update: The agreement with Dava has been finalized, a Randolph spokeswoman said in an email on Monday, Aug. 31.
Yet another Piedmont Triad health care system announced its intentions to combine with an out-of-state suitor.
The Dava Foundation, a Manchester, Tennessee nonprofit, is expected to purchase the Asheboro-based Randolph Health, a 145-bed hospital that offers maternity and cancer care, among other services. The exact terms of the purchase are still being negotiated, but a final agreement is days away, Randolph Health leader Angela Orth said on Thursday.
The hospital has been looking for a partner for the last few years.
“The process of looking for a buyer has been really difficult,” she said. “And we’ve not — up until this point — really found a buyer who’s been interested in keeping all of our services open, keeping the hospital open and purchasing all of our assets.”
Earlier this month, Cone Health, a neighboring system to the north, announced plans to merge with Norfolk, Virginia-based Sentara Healthcare. Cone and Randolph had discussed a potential union in the past, but most recently, talks dissolved in March amid the spread of coronavirus in the state, Orth said. Around the same time, Randolph filed for Chapter 11 bankruptcy and hired outside help to look for a buyer.
Randolph’s financial struggles date back to a $49 million 2007 bond the hospital took to build the newest addition to its facilities, an imaging and endoscopy area. Parts of the hospital date back to the 1930s and are in such disrepair, Orth said, that patients cannot be seen there. But the bond came due recently, she added, and the health system was unable to cover payments, despite a modest positive margin from operations in the last quarter of 2019.
Orth declined to talk in detail about the search but said the decision to go with Dava came after extensive due diligence. In addition to buying the hospital for an undisclosed amount, Dava will receive a $20 million infusion from Randolph County to renovate the Asheboro hospital’s facilities.
The money would come from the state’s Rural Health Care Stabilization Act, a fund the General Assembly created in 2019 to shore up struggling hospitals. The law was championed by state senate leader Phil Berger (R-Eden) and recently retired Sen. Jerry Tillman, who represented Randolph County for 18 years.
Dava will not repay the loan, however; the county will.
County officials have signaled their eagerness to retain the hospital, one of the largest employers in the community, even with a $20 million price tag.
“It’s more than just a place for patients to go for health care,” Darrell Frye, chairman of the Randolph County Board of Commissioners, said about the decision. “It has a lot to do with the economy of our county. It has a lot to do with our future economy and our ability to recruit and retain jobs.”
Frye said the county could easily pay the 20-year loan to the state without increasing taxes. Though the county has several other obligations, including the construction of new schools, he added, repaying the loan would not interfere with those commitments. The county will receive two seats on Randolph Health’s new board in return, Frye said.
Coronavirus on top of bankruptcy
As for many rural hospitals across the state, coronavirus has not been kind to Randolph Health’s bottom line. Suspending elective surgeries in March, April and part of May, resulted in more than a $1.6 million loss, according to court filings. Though patients have slowly begun to return to the hospital for elective procedures, Orth said not all of them have come back and the hospital is doing fewer elective surgeries now than they had last year.
Operational changes have also hurt the hospital’s bottom line. Court filings show that the hospital shut down its ICU and decided to transfer most COVID-19 patients to Cone Health. From a financial standpoint, COVID-19 patients could have made up for some of the losses the hospital incurred, but Orth said the decision to divert patients was a matter of capacity.
The hospital does not have an infectious disease specialist, she said, and the staff wasn’t prepared to care for patients who needed to be on a ventilator for a long time, something that can happen to COVID patients.
The hospital focused its resources on sectioning out the emergency department to create a separate area for patients with respiratory symptoms, Orth added, and has created a temporary holding area for up to four intensive care patients. It was the right thing to do for patients, Orth said, even if the hospital’s margins suffered in the short run.
The ICU has not yet reopened, Orth said on Thursday.
With bankruptcy proceedings happening almost simultaneously, Orth said it became clear that the hospital would need a buyer and that search began in March.
“It became obvious to us that in order to achieve the goal of protecting local health care, we must act quickly … and that is how Java surfaced,” Orth said.
Both Orth and Frye speak highly of the Dava Foundation, which is incorporated in Manchester, Tennessee, that state’s Secretary of State filings show. According to Randolph’s press release, another company, the Nashville, Tennessee-based Java Medical Group, will manage the hospital.
Both Java Medical Group and Dava Foundation have Bappa Mukherji in common. The Tennessee Secretary of State lists Mukherji’s name and address for Dava Foundation. Mukherji is CEO of Java Medical Group, according to the company website.
Orth and Frye said they’ve been impressed Java, Dava and Mukherji. But these entities are difficult to track.
According to Java’s website the company “partners with rural hospitals to improve financial performance while delivering quality medical care.” It lists three hospitals on its website — two in Alabama, and one in Mississippi.
Java has no phone number on its website. An email requesting comment on Thursday about the proposed union with Randolph was blocked and other interview requests through a form on the company’s website Thursday and Friday went unanswered.
Dava does not appear to have a website, and there are no financial filings for the organization on Guidestar, the information database for foundations and nonprofits, despite Dava being approved by the Internal Revenue Service in 2018. It is currently listed as having $0 assets and $0 in receipts.
Mukherji, however, spoke at a recent board of commissioners meeting that was also streamed online.
“What is important for us is that we do not want to sacrifice any of the service lines that are currently at the hospital,” he said. “If it is being done there today we intend to continue to maintain those services … we do not want to lose any jobs and we do not want to lose any services.”
Mukherji said Java can make that happen by using federal funds that are available to rural hospitals, he did not, however, explain which funds would be used and if Randolph had used similar support in the past. He told the board of commissioners that he is looking to generate enough revenue to reinvest in the hospital and recruit additional providers to the area, including in outpatient addiction rehabilitation services. He said hospital staff vetted the plan and found it “viable and doable.”
When asked about the $20 million, Mukherji said the money will be used “almost exclusively” to renovate the hospital and update its equipment.
Mukherji’s vision for Randolph is so rosy that it is almost at odds with the realities of rural hospitals in North Carolina. Hospitals across the state have struggled with negative margins and as a result have cut costly but needed services, including maternity and inpatient psychiatric care. But Mukherji spoke of a long-term expansion of services and specialties at Randolph.
The board of commissioners, for their part, highlighted Mukherji’s track record and experience in managing rural hospitals. They did not speak of a scandal involving a past Java employee Ed Henry, also a former Alabama state representative and a former manager of one of Java’s Alabama hospitals. Henry was indicted in 2018 for a pill mill scheme that took place from 2015 to 2017 at a company he established.
Orth said Randolph Health is aware of the scandal.
“We have discussed the circumstances surrounding the allegations surrounding Mr. Henry with Java representatives,” Orth said. “The allegedly improper conduct occurred prior to his association with Java. Java promptly severed ties with Mr. Henry when they learned of the allegations and there’s no suggestion that Mr. Henry’s actions in any way involved Java.”
Orth said Randoph’s administration is “satisfied that this issue has no bearing on Java’s fitness to serve as our property buyer.”