St. Francis loses
potential suitors

Hawaii Pacific Health and Kaiser
have exited the running to buy
St Francis' Oahu medical centers

Local hospital owner Hawaii Pacific Health, ending nearly two years of evaluation and negotiations, has pulled out of the running to buy the financially troubled nonprofit St. Francis medical centers.

The withdrawal by the health-care conglomerate comes about a month after Kaiser Permanente Hawaii ended talks and leaves about four or five groups still interested in the St. Francis centers, according to Eugene Tiwanak, chief foundation officer of St. Francis Healthcare System of Hawaii.

"The proposals are still being review by our investment banker and we expect some kind of selection will be made by the sisters this week," Tiwanak said yesterday.

Among the remaining bidders are Queen's Health Systems and Wichita, Kan.-based Cardiovascular Hospitals of America, which has been joined by the Philippine Medical Association of Hawaii and Hawaii Filipino Healthcare. Two or three others groups have submitted proposals and have dealt directly with St. Francis' investment banker, Tiwanak said.

Hawaii Pacific Health once had an exclusive right to negotiate a deal with St. Francis, but that expired about six months ago. Hawaii Pacific Health withdrew on Thursday.

"We have come to understand that the goals, objectives and expectations of the sisters of St. Francis and Hawaii Pacific Health are very different," Hawaii Pacific Health spokeswoman Pat Oda said in a written statement.

Hawaii Pacific Health was formed in 2001 by the marriage of four Hawaii hospitals, including Kapiolani Medical Center for Women and Children, Kapiolani Medical Center at Pali Momi, Straub Clinic & Hospital and Wilcox Memorial Hospital on Kauai.

St. Francis, the state's largest kidney dialysis provider, operates two Oahu medical centers, St. Francis-Liliha and St. Francis-West.

Like Hawaii Pacific Health, Kaiser didn't see St. Francis as a good fit.

"It didn't seem like it was going to work for us so basically we decided not to go forward," said Scott Nariyoshi, corporate communications director for Kaiser. "But we left our options open as it related to any possible joint ventures in the future."

Earlier this year, Sister Beatrice Tom, St. Francis Healthcare's chief executive, said the hospitals were still trying to recover from a seven-week nurses strike in 2002 that cost more than $4 million and forced the closing of two floors in the 188-bed Liliha facility.

Tom also said St. Francis has been making loan payments on $30 million in debt and that the loan's bondholder, Financial Securities Assurance, had ordered a new schedule to increase revenue and required that St. Francis at least consider a sale or merger.

"We had certain targets we were trying to achieve toward the restructuring and one of the targets was to find or merge with another health care provider," Tiwanak said. "I think the proposals that have come forth will satisfy those requirements. I'm confident we'll come up with some selection, but after the initial selection is made, there's still a continuing due diligence process that will take another 90 days."

Tiwanak said there are other hurdles that have to be cleared. The transaction will need to go through regulatory agencies such as Medicare and Medicaid, the Hawaii State Health Planning & Development Agency, the state Department of Labor and Industrial Relations and the Attorney General's office. The pope's approval also is needed since St. Francis is a Catholic institution, Tiwanak said.

"Even with the selection being made in June, we still estimate it will take another six to nine months to complete," he said. "At the same time this is happening, obviously, business has to continue."

Tiwanak said it's too early to put a value on the deal or determine how it will affect St. Francis.

"It depends on what the proposal includes in terms of the facilities and properties of the two hospitals," Tiwanak said. "Any action taken toward a sale or merger would include not only the assets, but the liabilities would have been part of the investment banker's review. As part of the investment, the liabilities need to be taken care of and a fair return provided to the sisters."

Tiwanak said St. Francis is meeting all its financial targets as required by the bond insurer.

"We rebounded from last year and I think we'll be showing a very positive picture at the end of this fiscal year on June 30," he said. "I don't believe we'll show a profit, but I believe we'll hit our financial targets."