EXCLUSIVE: A Few Words with Sound Shore Medical CEO John Spice on Montefiore Acquisition

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EXCLUSIVE: A Few Words with Sound Shore Medical CEO John Spice on Montefiore Acquisition

May 29, 2013 - 21:57

Image003 copyNEW ROCHELLE, NY -- In between meeting with employees in New Rochelle and Mount Vernon, Sound Shore Health System President and CEO John Spicer took a few moments to discuss the process under which Montefiore Health System will acquire the assets of Sound Shore Health System including Sound Shore and Mount Vernon Hospitals as well as the Schaffer Extended Care Center.

"Montefiore is a solid organization and worked hard with us," said Spicer. "We view this as very positive for us. We are a low-cost hospital and Montefiore has positioned themselves well in this whole new area of 'accountable care."

Accountable care is an approach to delivering medical services that offer financial incentives for doctors and hospitals to cut costs. Health costs are projected and if the provider spends less than that amount while meeting certain quality benchmarks, is shares the savings with its insurance provider. The New York Times ran a feature on Accountable Care last month.

Asked about concerns about New Rochelle losing local control of an important local institution, Spicer was clear that Montefiore would be in charge but was confident there will continue to be local involvement although the exact nature of that involvement from the board level has yet to be finalized.

"The third party in the room was the New York State Department of Health," said Spicer. "They want a full service institution in New Rochelle and Mount Vernon. Montefiore has agreed to do that."

Asked to look five years out, Spicer said he expects to see a significantly increased volume of patients at the two hospitals in New Rochelle and Mount Vernon.

Spicer said that Montefiore had made a commitment to rebuild and upgrade emergency rooms at both locations, to make needed infrastructure improvements, and to update patient care facilities such as the Schaffer Pavillion.

"This deal and this process insures we are going to be active and involved in the community for years to come," said Spicer "It positions us much better as an organization."

Montefiore has been working to expand over the past several years, especially in Westchester County. Montefiore Health System has opened offices in Tarrytown and Yonkers and will now add New Rochelle and Mount Vernon.

Asked about concerns that New Rochelle would be losing local control of an important institution in the City, Spicer pointed to the realities of the medical services marketplace.

"There is no way a free standing community hospital is going to continue to exist," said Spicer.

Sound Shore Medical Center is one of the largest employers in New Rochelle.

Spicer had already spoken to employees in New Rochelle, as well as unions and various doctor groups, who he described as positively disposed towards the deal. He did not expect any layoffs as a result of the deal under which Sound Shore Medical Center will continue to operate normally while the process unfolds.

Asked about the deal itself -- an asset sale organized under Section 363 of the U.S. Bankruptcy Code -- Spicer said it was closer to a pre-package deal with Montefiore, we have not had any real conversations with unsecured debtors, the secured debtors will be taken care of under the deal.

A "363" asset sale is a common transaction for non-profit hospitals in a distressed financial condition. The purpose of the section of the Bankruptcy code is to allow a company to sell its business "free and clear" of liens and other debts through an organized sale process. The ability to acquire the business without successor liability and credit risks is often critical to the buyer who might otherwise be unwilling to proceed with a transaction.

Teri Rasmussen on Yahoo! describes the 363 process for a sale of assets as permitting the disposition of assets of the bankrupt company outside the ordinary course of business.

Two key features of a 363 Asset Sale are that it can move quickly -- provided their are no objecting parties -- and that the buyer gets certain key protections. Rasmussen writes:

1. A sale of assets in bankruptcy can often be accomplished more quickly with a 363 sale rather than in the context of a plan of reorganization. A 363 sale requires only the approval of the Bankruptcy Judge while a plan of reorganization must be approved by a substantial number of creditors and meet certain other requirements to be "confirmed." A plan of reorganization is much more comprehensive than a 363 sale in addressing the overall financial situation of the Debtor and how its exit strategy from bankruptcy will affect creditors.

2. Opponents of the proposed sale will have a designated response period determined by the pertinent Bankruptcy Court (often 10 or 20 days) in which to file written objections to the proposed sale. Frequently, although not always, this time period will be shortened considerably and be little more than a few days.

2. One of the best features of the Section 363 sale for a buyer is the power provided by Section 365 of the Bankruptcy Code, which permits a buyer to assume most executory contracts and leases without regard to non-assignment provisions or consent requirements in the contract itself. This tool allows the purchaser, through due diligence, to identify and in effect "cherry pick" either below market or otherwise competitive contracts that it would like to have assigned to it as part of the sale transaction while leaving above-market contracts behind with the debtor to be rejected.