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Providence will drop lawsuit against rival

By John Stucke
Staff writer
September 19, 2008

Providence Health Care plans to withdraw its lawsuit against Empire Health Services amid worries that the litigation would stop the sale of Deaconess Medical Center.

Community Health Systems, which has received regulatory approval to buy the hospitals for $156 million and planned to complete the transaction Sept. 30, said this week that the lawsuit was a deal-killer. Providence insisted that the lawsuit was outside the bounds of the sale, arguing that it focused entirely on ownership and contractual issues surrounding the joint venture Inland Northwest Health Services.

Neither side backed down until Thursday evening.

"Providence takes this action with heightened concern about CHS' true commitment to the transaction and with apprehension about the future of our partnership with CHS in INHS," said Dr. Andrew Agwunobi, chief executive of Providence. "We have made this decision in the interest of patients and providers in the Spokane region."

Community Health executives wrote Agwunobi a letter about their plans to cancel the sale, and Empire board Chairman Ron McKay asked Spokane business and health care leaders to help ensure the deal went through.

The heart of the dispute remains, even as the lawsuit is off.

The 14-year collaboration between Providence and Empire has been successful, with INHS operating air ambulance services, a rehabilitation hospital and a successful electronic medical records business.

Providence officials say that as INHS grew, agreements on its shared operations were not subjected to the rigorous legal review usually applied to contracts governing such valuable assets.

Agwunobi acknowledged Thursday that Sacred Heart wants to sew shut loosely written contracts to ensure its investments are protected.

For example, Empire holds the license of Meditech, an electronic medical records system used by 38 hospitals, including Sacred Heart and Holy Family Hospital.

While the hospitals share the cost of the technology, Sacred Heart officials are wary of possible legal actions that could undermine the current agreement. Their concerns are so serious, Agwunobi said, that the lawsuit was filed to force the issue.

He said Community Health has rejected invitations to talk about the future of INHS.

McKay said Community Health was reluctant to talk "until they can sit in equal standing and go through the definitive issues."

Sacred Heart President Mike Wilson likened the issue to a forced marriage, saying that in this case Empire was divorcing itself from Providence and then selecting a new partner for Providence.

McKay said Sacred Heart did the same thing when it merged with the larger Seattle-based Providence Health & Services in 2005.

It has been a big week for Providence.

The hospital system is at odds with leading insurer Premera Blue Cross over reimbursement rates, with Providence officials warning Premera customers that unless a deal is reached, Sacred Heart and Holy Family will withdraw from the insurer's provider network. That could result in patients having to pay much greater portions of their hospital bills.

Sacred Heart also filed a $175 million expansion plan that would add 173 patient beds, a bigger emergency department and a new regional cancer center. The changes would make Sacred Heart the largest hospital in the state.

The dispute with Empire, however, may have had largest repercussions for Spokane.

The medical and business communities have lined up behind the sale of Deaconess. Even Providence has welcomed the sale as a way to ensure Spokane has two healthy hospital systems.

But Providence officials warned Deaconess last winter that failure to resolve ownership and contractual issues surrounding INHS could lead to litigation.

McKay had said the actions amounted to tampering.

Agwunobi said the INHS collaboration between Providence and Empire worked because both hospital systems are not-for-profits with a long history of treating the region's poor and vulnerable.

Providence is wary that the hospital systems' missions may not match when for-profit Community – with shareholders to satisfy – comes to town.

"They don't have to adopt our mission," Agwunobi said, "but our interests must be aligned."

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