Good Shepherd sells medical offices, other buildings in $68.5M deal

54a635124b963.imageGood Shepherd Health System sold nine medical offices and other buildings this past month in a $68.5 million deal an official said improves the Longview-based system’s financial situation and the focus on its core health care mission.

The sale includes the Institute for Healthy Living on Hawkins Parkway and Medical Plaza buildings on East Marshall Avenue in Longview, which the hospital system is leasing back from the health care real estate investment firm that purchased them.

The buyer, Griffin-American Healthcare REIT III, is based in California and has reported more than $200 million worth of other medical office building acquisitions in other U.S. states since September.

Good Shepherd will continue operating the institute and other facilities included in the purchase. Members and patients should see no changes, hospital officials said. Leases with non-Good Shepherd entities in buildings included in the sale were transferred to Griffin-American Healthcare.

Good Shepherd CEO Steve Altmiller said in a statement that divesting the health system of the buildings brings it in line with the rest of the health care industry.

“It has been common business practice within healthcare entities to divest themselves of medical office buildings that are not core to ‘healthcare operations,’” he said. “Property management, leasing, facility maintenance and improvements are better managed by real estate operators rather than health care operators.”

Building operations in the affected facilities should improve, he said, because “experienced real estate operators” will be overseeing them.

The sale comes at the end of a year that saw Good Shepherd close some of its operations in other counties amid financial struggles. The health system shut down its Linden hospital after incurring more than $12 million in operating losses since acquiring it nine years ago. Longview-based PhyNet purchased the Good Shepherd Medical Associates Family Health Centers in Linden and Hughes Springs weeks before the hospital planned to close them.

In addition to the employees who lost jobs when the Linden hospital closed, Good Shepherd in March announced it had laid off 24 people across all areas of the hospital.

Moody’s Investors Service and Standard and Poor’s also downgraded their ratings of Good Shepherd Medical Center’s outstanding bond debt earlier this year

Altmiller said the sale would have made “economic and operational sense” regardless of the hospital system’s financial position. The move was not prompted by the hospital system’s debt load, he said, adding that the hospital’s financial challenges are not related to its existing debt load.

“The net cash derived from the sale is being used as part of our debt management and cash revenue management plans.

The sale helps GSHS improve its cash resources and improves its credit position,” he said. “The sale of these properties greatly improves GSHS’ cash reserves and overall liquidity.

“The financial turnaround of GSHS continues and is expected to be completed by the end of the current fiscal year (Sept. 30, 2015). Continued cuts in Medicare and Medicaid funding, along with the lack of Medicaid Expansion in Texas, will require leadership to remain focused on ‘Service, Quality and the Cost of Healthcare.’ ”

Reimbursement changes, insurance plan designs and competition were among the pressures that led to the sale. Also, Altmiller said, the Diagnostic Clinic of Longview’s acquisition by Longview Regional Medical Center parent Community Health Systems led to a “significant loss in patient volume” of 19 percent and loss of revenues.

In a statement, Jim Kendrick, Longview Regional CEO, said the hospital was focused on ways to improve care through collaboration with physicians and other providers.

“We believe that this continued collaboration will cause continued growth for our organization and great benefit for our community,” he said.

Altmiller said the changes are part of a shifting landscape in U.S. health care requiring across-the-board restructuring and reinventing.

“While very difficult and stressful for our staff, we believe we will be better and stronger by the end of our financial turnaround and be able to continue our focus on our competitive strength: the quality of our staff, physicians and nurses,” he said. “That’s the real business we are in.”

Gregg County Judge Bill Stoudt said the hospital was “up front” about its plans to sell some of the hospital system’s properties. It’s the hospital’s call to do what it needs to continue to make the hospital a “viable institution.”

“I think they’re doing what they think they need to do,” Stoudt said.

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