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Bay Medical Center Submits Lease Document to the Bay County Commission for Review

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Panama City, Florida — The administration of Bay Medical Center today presented to the County Commission for its review an agreement to lease the hospital to a joint venture between Sacred Heart Health System and LHP Hospital Group, Inc. The Bay Medical Center Board of Trustees has not yet taken its final vote on the agreement, but last week authorized administration to forward the agreement on to the County Commission. The form of the agreement is now substantially complete. The Bay Medical Center Board of Trustees is expected to hold a workshop within the next two weeks and take a final vote on the lease transaction soon. If approved by the Bay Medical Center Board, the agreements would then require approval from the County Commission.

Bay Medical Center President and CEO Steve Johnson said, “It has taken a lot of hard work by all three organizations to finalize the details of the agreement. But I am convinced that the negotiations have produced an agreement that will greatly benefit our community and our hospital.”

“I’m pleased with the provisions we have in the lease,” Johnson said. “Employees will continue to have their jobs, pensions will be protected, charity care will continue and local citizens will continue to have a role in governance of the hospital. These were key elements that had to be protected.”

“Sacred Heart has provided healthcare to residents of Northwest Florida for almost 100 years, and we look forward to this opportunity to extend our healing mission,” said Laura Kaiser, President and CEO of Sacred Heart Health System. “With hospitals in Pensacola, Walton County and Gulf County, Sacred Heart sees this partnership with Bay Medical as an integral part of our strategy for regional growth. This is good news for Bay Medical because it ensures it will have the financial strength and stability to continue its great healthcare services and carry on our shared mission of care.”

LHP CEO Dan Moen commented, “LHP is honored to be partners with Sacred Heart in a joint venture to lease Bay Medical Center. We have worked hard to develop documents that protect the interests of all the citizens of Bay County and the high-quality healthcare services that have characterized Bay Medical for the past 60 years.”

Moen added, “Negotiations in a transaction such as this are quite complex, but I can say without reservation that everyone had the same goal of doing what is right and necessary to secure a positive, productive future for Bay Medical Center.”

Some of the key elements of the lease are as follows:


All existing Bay Medical Center employees will be offered continued employment.

Charity Care

The joint venture will adopt Bay Medical’s current charity care policies and will abide by the community benefit standards applicable to not-for-profit hospitals. This was also a requirement of Sacred Heart’s participation in the joint venture since service to the poor is integral to its mission.

Hospital Name

The joint venture has agreed to maintain Bay Medical Center in the name of the hospital, in conjunction with a reference to Sacred Heart Health System.

Proposed Logo:


Continuation of Services

The joint venture has committed to continue offering the services currently provided by the hospital for at least five years. This is a guarantee that the citizens of Bay County currently do not have.


The price negotiated with the Sacred Heart/LHP Joint Venture of $154 million is fair market value as determined by an appraisal obtained from Morgan Keegan’s health care division. This amount represents both the up-front payment for the 40-year lease and the purchase price for the equipment and other operating assets.

Once all terms are finalized and documents are complete, an additional step to make sure the lease agreement is fair and in the public interest will be conducted by using an independent firm to render a fairness opinion. The fairness opinion will be given after extensive review of all aspects of the transaction including price.

Right of First Refusal

In the event the joint venture wishes to assign the lease to a third party within the first 20 years of the lease term, the Bay Medical Center Board of Trustees will have the first right of refusal to reacquire the joint venture’s leasehold interest. A similar right of first refusal exists if Sacred Heart and LHP wish to transfer all of the interests in the joint venture to a third party during the first 20 years of the lease term.

It is important to note that in the event that neither Sacred Heart nor LHP were involved, any future leaseholder would remain bound by all the provisions of the lease.


There will be a 12-member Board of Trustees for the hospital made up of up local community leaders and local physicians. The Board will be responsible for functions including participating in the development and review of operating and capital budgets and facility planning, participating in the periodic review of the CEO, monitoring performance improvement initiatives, and medical staff compliance with requirements of The Joint Commission.

Donor Signage

The joint venture will continue to display signage honoring major donors to Bay Medical Center.

Other key elements of the transaction outside the lease agreement but approved by the Board of Trustees:

Pension Funds

The employee pension funds will be held in trust and managed by the Bay Medical Center Special District, not the joint venture. The pension plan is fully-funded according to Florida state law requirements and will continue to meet those requirements into the future. The current pension asset value is $80 million.

Community Foundation

Proceeds of the lease will be used to pay Bay Medical’s $115 million debt as well as any outstanding liabilities incurred prior to execution of the transaction. Once the liabilities are paid, remaining funds will be used to establish a foundation to fund unmet community health related needs.

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