Hospital systems address state’s merger-related request

Tony Keck

Tony Keck

By Jeff Keeling

Some of the information the state of Tennessee says is needed in a proposed cooperative agreement between Mountain States Health Alliance and Wellmont Health System is already in the state’s hands, representatives from the two health systems said Monday. It’s just in other documents.

Representatives from the systems also said the latest in an ongoing correspondence between the Tennessee Department of Health (TDH) and the two hospital systems involves mostly technicalities in the merger applications.

Thursday, TDH posted a March 28 letter from the department’s commissioner, Dr. John Dreyzehner, to Mountain States Health Alliance and Wellmont Health System CEOs Alan Levine and Bart Hove. The letter referenced “incomplete sections” of the cooperative agreement. It cited three main areas of incompleteness, two of which are primarily housekeeping matters, MSHA’s Tony Keck and Wellmont’s Todd Norris told News & Neighbor Monday.

In short, one of those two areas is covered in the systems’ application for a “Certificate of Public Advantage” (COPA) filed Feb. 15, but is not included in the “cooperative agreement” between Wellmont and Mountain States. A pending addendum to that agreement, with answers to the items in TDH’s letter simply copied from the COPA application, “solidifies that the commitment we’re making is not only to the state, but also to one another as parties in the new health system,” Norris said.

The other technical area involves proprietary information, Keck said.

Todd Norris

Todd Norris

The TDH letter cites the cooperative agreement’s lack of “counsel memoranda” from each system covering information about tax matters, subsidiaries, contracts, property title and the like. Keck said a number of those areas involve confidentiality, and that, “we wanted to make sure we figured out a way to get that submitted to (the state) without violating any confidentiality.” He said the systems continue working on that.

The second citation includes a long list of information regarding a host of issues. They’re all straight from the rules governing the COPA, and range from financials, the area’s competitive environment and a merger’s impact on the health care industry workforce, to population health measures to be included in the state’s review of a merged system’s performance.

A review of the COPA application shows that starting on page 61, the details referred to as lacking in the cooperative agreement are present. In some cases, such as the requirement to describe, “existing or future business plans” related to projected performance in the market, competitive analyses and the like, the systems wrote they were “considered competitively sensitive information under federal antitrust laws and will be subsequently filed.”

Most of the answers, though, are right there in black and white over roughly 40 pages of the application – they’re just not also in the cooperative agreement.

Keck and Norris both acknowledged that in any of the sections cited, TDH could request more detail or changes before deeming the application complete – something that must occur before a 120-day review period actually commences.

“In this case, it’s a very technical point about them wanting this information included in our affiliation (cooperative) agreement,” Keck said. “I think if they have more questions about the actual meaning of the content that we’ve submitted in the application, which we’ll now put also into the affiliation agreement, they’ll send further communication.”

The third issue – regarding TDH’s requirement that the systems file a “plan of separation” in case a merger was approved but didn’t live up to the state’s regulatory requirements – will take a bit more conversation with TDH, Keck and Norris said. Dreyzehner’s letter referred to the current plan of separation in the systems’ February application for a COPA allowing a merger as a, “minimal framework” that “does not provide the level of detail necessary … to outline a clear, actionable plan to separate a merged entity.”

After TDH developed its emergency rules for oversight of a COPA-allowed merger, lawyers representing both hospital systems took issue with the propriety of TDH requiring a plan of separation to be filed prior to COPA approval. They cited the law that allows for the COPA in a Sept. 23, 2015 letter, writing that it didn’t mention a plan of separation while referring to the COPA application process.

“The first mention of a Plan of Separation in the Act is found in Section 68-11-1303(g), which deals with the Department’s monitoring responsibilities after it has issued a certificate of public advantage and the Cooperative Agreement has been implemented,” the Sept. 23 letter states. It goes on to request that the rules governing the COPA be amended to not require preparation and submission of a plan of separation, unless the state has determined the advantages of the merger no longer outweigh the disadvantages caused by reduced competition.

TDH spokesman Bill Christian has told News & Neighbor that the rules are set for an amendment process, leaving open the possibility that TDH could allow that requested change, which Keck said the systems still desired.

In the meantime, though, the systems did file the a three-page plan of separation, which can be found on pages 2,571-2,573 of the COPA application. It is followed by a four-page letter from FTI Consulting, the group that also worked up financial models showing the additional cash flow a merged system would create. That letter concludes by citing FTI’s belief that the plan of separation, “can serve as the basis for an effective process to restore competition to the pre-consolidation competitive state through an orderly transition that can be operationally implemented without undue disruption to the essential health services provided by the parties…”

Speaking of consultants, Dreyzehner noted in his letter that TDH has engaged consultants, “to ensure the department has the specialized expertise required to conduct due diligence in a manner that adequately protects all who may be affected by the proposed merger.” When it comes to the plan of separation, TDH isn’t seeing it FTI and the hospital systems’ way, at least not yet.

“We are getting on the phone with them this week to have that conversation,” Keck said. “So whereas the first two are technical fixes, the third one we’ve got to have a conversation with them to try and understand what they’re looking for.”

The March 28 letter, the COPA application and all other documentation related to the process in Tennessee can be accessed at


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