Cottage Hospital agrees to be bought

By Mike Kroll

The financial struggles of Galesburg Cottage Hospital have been fodder for the local rumor mills over the past six months or more. As a stand-alone not-for-profit community hospital in an economically challenged small city that boasts two hospitals it should not have surprised anyone that the Cottage Board sought our suitors via an RFP earlier this fall. As of Tuesday Cottage could euphemistically be said to be going steady with a new beau.

CEO Dennis Renander announced via a press release that the Cottage board had that morning "signed a non-binding letter of intent to sell the hospital to a subsidiary of the for profit Community Health Systems of Brentwood, Tennessee. The signing of this agreement means that Cottage will now enter into exclusive negotiations with CHS for the ownership transfer of Galesburg Cottage Hospital."

"Cottage Hospital will continue to operate as an acute care general hospital. CHS has a proven record of successfully operating facilities similar to Cottage Hospital. The company provides its hospitals with access to capital, physician recruitment, managed care expertise and support from healthcare management specialists with extensive experience operating non-urban healthcare facilities."

Asked about the negotiation timeframe and when the actual ownership transfer might take place Renander admitted he just doesn’t know for sure. His best guess was that the process would take "a few months." He is very upbeat about the prospect and sees the deal as a win-win-win-win for the hospital board, hospital staff, Galesburg community and CHS. "The letter commits CHS to retaining all Cottage employees with the accumulated seniority and it pledges to honor all employee physician contracts as well. The board really deserves to be complimented for the thorough and complete effort that went into evaluating the various RFPs in such a short time frame."

CHS was begun in 1985 and is headquartered just outside Nashville. The company currently owns 73 hospitals across 22 states and has been growing by about 4-6 hospitals annually. This year was a bit of an aberration with the purchase of a seven-hospital chain from the Sisters of Mercy Health System in St. Louis, Missouri. That deal put them at 8 acquisitions before the end of the second quarter and CHS has acquired an additional two hospital during their third quarter. According to the CHS website ( the company looks for hospitals in small to moderate non-urban markets with a stable or growing population base between 20-150,000; preferably without direct competition in a 25-mile radius; and in an area not dependent upon a single employer or industry.

Not surprisingly the secret to their turnaround success is in implementing a combination of cost savings coupled with revenues from expanded local services. CHS spokesperson Rosemary Walsh said, "Healthcare is a hometown issue and we try to operate our hospitals as autonomously as possible. Each maintains a local board and while we try to take advantage of centralized purchasing efficiencies for the most part our hospitals are run locally rather than centrally."

CHS pushes new technology into their hospitals and invests in expanded emergency rooms and in the facilities necessary to support a broader array of specialty physicians. While a hospital like OSF St. Mary’s is viewed as a feeder to the larger OSF hospital in Peoria CHS works to provide as many services as possible within the community hospital to minimize the need to transfer patients out. It is too early in the process to know for sure what direction a CHS purchase of Cottage might take but the company track record shows that they typically invest heavily in capitol improvements and physician recruitment following the purchase of a new hospital.

"We are excited about the prospect of serving the Galesburg community," said Walsh. "But I don’t expect this deal to be completed for at least six months. We still have much to learn about Galesburg and Cottage Hospital before we can determine the best way to improve services and profitability to the operation."