Here’s a portion of the Crain’s Chicago Business story:
Crain’s — Loyola University Chicago is raking in $100 million from the sale of its hospital system, which hasn’t seen an operating profit in seven years, and freeing itself from a mountain of debt.
In exchange, the new owner of Loyola University Health System is being allowed to slash its annual subsidy to the university’s medical school.
Under the deal reached this month, Novi, Mich.-based non-profit hospital operator Trinity Health Corp. will pay just $22.5 million a year to the university to help offset the medical school’s operating costs, according to a letter of intent filed Monday with the Illinois Health Facilities and Services Review Board.
That’s nearly 30% less than the $31.9-million average annual payment the hospital system made to the university between 2003 and 2008, the most recent year the data were reported by credit ratings agency Moody’s Investors Service Inc.
Loyola declines to disclose the 2009 figure, saying it was not comparable to other years because of layoffs. The hospital system eliminated 440 positions, or 8% of its workforce, that year.
In the fiscal year ended June 30 of last year, the health system paid the university $24 million; this year’s payment is expected to be $18 million, a Loyola University spokeswoman said.
The $100 million will be deposited in an endowment fund to “benefit the school’s health sciences operations supporting medical education and research,” she said, declining further comment.
The sale includes the 569-bed Loyola Medical Center, a teaching hospital in west suburban Maywood, and the 264-bed Gottlieb Memorial Hospital in Melrose Park, about 3.5 miles away. Loyola will be the first teaching hospital acquired by Trinity, which has a $400-million credit facility it can draw down to fund the purchase.
The deal comes amid tough times for teaching hospitals, with for-profit medical centers reluctant to fund educational programs and other sources of support hard to find.
“Loyola is making a tough choice,” said health care attorney Kara Friedman, a principal in the Chicago office of law firm Polsinelli Shughart P.C. “The health care research environments are evolving so rapidly in an uncertain economic climate that it is hard to say what the mid-term and long-term will bring.”
Dr. Richard Gamelli, dean of Loyola’s Stritch School of Medicine, declined to comment through a spokeswoman.
A Trinity spokesman said the non-profit company “is making a long-term financial commitment to the medical school, but the terms are still being negotiated.”
As part of the final sale documents, Trinity and Loyola expect to hammer out a new affiliation agreement to replace the current one, which dates to 1995.
Reducing financial support for academics could be key to Trinity returning the beleaguered hospital system to profitability. Loyola Health narrowed its operating loss to $7 million in 2010 from a loss of $37 million the year before, Moody’s said. The medical center hasn’t been in the black since 2004, when it eked out an operating profit of $500,000, according to Moody’s data.
Still, Loyola Health reported operating revenue of nearly $1.1 billion in fiscal year 2010, up 10% from the year before. And, citing the improved results, the Trinity spokesman said the reduction in academic support is not part of a turnaround plan.
At the sale’s close, expected before June 30, $20 million of the $100-million payment to the university will be placed in escrow for an undisclosed period to cover any unexpected liabilities assumed by Trinity, according to the letter of intent.
For Loyola, a key to the deal is that it takes the university off the hook for $350 million in debt, which remains with the hospital system after the sale closes, according to the letter of intent.
In December 2008, the university was forced to transfer $19 million to the hospital system to avoid a loan default. Although Loyola Health later repaid the money, the university had to transfer another $11.7 million —accounted for as reduction in academic support due the university — in June 2009 to again prop up the system.
As disclosed when the deal was announced March 4, Trinity and Loyola will each contribute $75 million to fund development of a research facility.
Trinity also has agreed to invest another $300 million over seven years to support Loyola Health while the university has agreed to pay $3 million annually to support faculty recruitment and retention activities.
- Kara Leslie
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