Saint Mary's Hospital

Overview

What is being announced?

The Waterbury Hospital has announced that they signed a letter of intent to merge with the previously announced joint venture (JV) formed between LHP Hospital Group, Inc. (LHP) and Saint Mary's Health System, Inc. (Saint Mary's).

Why does Waterbury Hospital want to join the joint venture between LHP and Saint Mary’s Hospital?

A combined joint venture with LHP/Saint Mary's and The Waterbury Hospital will bring together the two local hospitals and transform health care delivery in the Greater Waterbury community. This proposed transaction includes a commitment by the combined joint venture to construct a new medical center at a cost of $400 million that will replace both Waterbury Hospital and Saint Mary's Hospital. The combined revenue of both hospitals will be over $520 million, making it one of the larger hospitals in the State of Connecticut.

What is the value of the transaction?

The financial deals of the transaction are confidential and therefore not being disclosed.

Why does LHP/Saint Mary’s want to joint venture with The Waterbury Hospital?

LHP and Saint Mary's see this combined joint venture as a transformational event and believe that Waterbury Hospital's participation significantly enhances the benefit to the community. The combined joint venture also enables the construction of a new state-of-the-art medical center.

LHP is extremely selective when it comes to investing in hospitals. Its strategy is to invest in hospitals that not only fit well within its existing care delivery model, but also can grow with the company for years to come. LHP/Saint Mary's is excited about the potential it sees in the new combined joint venture with The Waterbury hospital. This will transform the delivery of health care for the Waterbury community and the region. LHP has a successful track record of working with community hospitals.

What Changes Because of the Combined Joint Venture

Does anything change at The Waterbury Hospital today as a result of this announcement?

Nothing changes today. Waterbury Hospital will continue to work with LHP/Saint Mary's to finalize the transaction and begin the regulatory process. In the meantime, The Waterbury Hospital's physicians and caregivers will continue to provide the great care they do today, and the organization continues to grow.

Will there be any service closures as a result of the combined joint venture?

The combined joint venture will continue to provide all of the hospital services currently being offered. The goal of the combined joint venture is to expand and enhance the quality and range of services that are being provided in the Greater Waterbury community. We will work closely together with all physicians to develop short and long-term plans that are based on community need. Any changes to clinical services or programs currently provided by The Waterbury Hospital will require the approval of the combined joint venture Board of Directors, which will have representation from LHP, Saint Mary's Hospital and The Waterbury Hospital.

What about the unions at The Waterbury hospital?

We will recognize and respect the rights of employees and treat all employees fairly. LHP management has a successful history of working with unions.

What happens with the Ethical and Religious Directives currently present at Saint Mary's – once this combined joint venture is approved with Waterbury Hospital?

Saint Mary's will maintain it's heritage as a Catholic hospital and will continue to abide by the Ethical and Religious Directives. The new facility, when completed, will respect the tradition of faith-based care consistent with Catholic teaching at Saint Mary's Hospital and abide by the Ethical and Religious Directives for Catholic Health Services.

How will The Waterbury Hospital and Saint Mary's maintain their local identity when it is affiliated with an out-of-town company?

LHP firmly believes that health care should remain local and each of LHP's facilities has successfully maintained its local identity. In addition, provisions in the Letter of Intent call for local leadership on both the combined joint venture board and the hospital board of trustees.

What will happen to the current hospital leadership team?

Because this is simply the announcement of a letter of intent, there are many questions that cannot yet be answered. As the agreements are finalized and further planning is completed, we will keep you informed in a timely manner.

What about the Waterbury Hospital's uncompensated care policy?

The combined joint venture Board of Directors will establish the uncompensated care policy for the hospitals. The policy will be at least as generous as the one in place at each facility now and will meet the community benefit standard. .

Will the hospital name remain the same?

Yes, both hospital names will remain the same for now. The combined joint venture board will determine the name of the new facility at a later time. Waterbury Hospital and Saint Mary's both have strong brand name recognition in Waterbury and across Connecticut and we will look for ways to continue to use that as an asset.

Will there be any changes to insurance plans that are accepted at Waterbury Hospital?

No. It is unlikely that there will be any changes to the current insurance plans accepted by The Waterbury Hospital as a result of this transaction.

The Overall Benefits of the Combined Joint Venture

What are some of the ways LHP will benefit The Waterbury Hospital?

The proposed joint venture includes a commitment to construct a new medical center facility at a cost of approximately $400 million that will replace both The Waterbury Hospital and Saint Mary's Hospital in the next four years. The combined revenue of both hospitals will be over $520 million, making it one of the larger hospitals in the State of Connecticut.

The Waterbury Hospital's affiliation with the combined JV will allow us to retire all of our existing debt, provide security for our pensioners, leverage economies of scale for access to capital and purchasing power, and share clinical best practices, providing more efficient delivery of services to patients and their families in our community.

Is there benefit to the Waterbury community having LHP here?

Yes. In addition to the significant benefit to the patient care we will provide for the Waterbury community, there are several major economic benefits.

• The combined joint venture will ultimately build a new state-of-the-art replacement hospital to serve the health care needs of the Greater Waterbury community.
  
• The combined joint venture will become one of the largest local tax payers.
  
• The combined joint venture will create jobs. Initially with the construction of the new hospital but long term will be a huge ecumenical boost to the local community.

The Decision Making Process

What other companies or partners did The Waterbury Hospital consider?

The Waterbury Hospital Board of Directors was intimately involved in the process of selecting a strategic partner. The Board retained an outside financial advisor and reviewed each option thoroughly, meeting many times to determine the best fit – strategically, financially and culturally - for The Waterbury Hospital.

When will this transaction be completed?

This is the first step in a long process, which includes due diligence and an extensive regulatory approval process. We hope the transaction will be completed in early 2012.

Is this a sale of Waterbury Hospital to LHP or the joint venture?

No. Instead, The Waterbury Hospital assets are being contributed to the combined Joint Venture of which LHP will be the majority owner and The Waterbury Hospital and Saint Mary's Hospital will be equal owners.

Is Waterbury Hospital in financial trouble?

No. The Waterbury Hospital is not in financial trouble but given the challenges facing hospitals around the country and the upcoming demands of health care reform, hospitals must find smarter, better and more efficient ways to make use of dwindling resources, particularly state and federal funds. The Waterbury Hospital has a long standing tradition of providing excellent patient care in this community, and we look forward to advancing our mission through this new combined joint venture.

What happens next?

The Waterbury Hospital and LHP/St. Mary's will immediately begin due diligence and negotiation of the definitive agreement while the LHP/St. Mary's regulatory approval process, already underway, will continue. Leadership from The Waterbury Hospital, LHP and Saint Mary's will meet with employees, physicians, and community leaders to prepare for the transition.

How the Combined Joint Venture Works

How much of The Waterbury Hospital will LHP own?

The hospital will be owned by a joint venture in which LHP/Saint Mary's and The Waterbury Hospital are owners. LHP will hold 80 percent, and Waterbury and Saint Mary's will each hold 10 percent.

How will the combined joint venture and the hospital be governed?

The Joint Venture will be governed by a board of 12 members. LHP will appoint 6 members, including one physician from each hospital's active medical staff. Saint Mary's and The Waterbury Hospital will each appoint three members. Actions requiring approval of the board will be accomplished through "block voting" such that it will require the approval of both a majority of the LHP directors and a majority of the two hospital's appointees.

The JV board will appoint a 12 member Board of Trustees that will oversee the combined operating activities of The Waterbury Hospital and Saint Mary's hospital. At least six of the members will be physicians from the active medical staffs and six members chosen from community leaders.

What can you tell us about LHP Hospital Group, Inc.?

LHP Hospital Group, Inc. (LHP) is a privately held company established to provide essential capital and expertise to not-for-profit hospitals and hospital systems. LHP's executives were formerly the management team at Triad Hospitals, Inc., which owned and operated fifty-four hospitals across the nation.

In cooperation with local hospitals, LHP forms joint ventures to acquire, own, operate and manage acute care facilities in small cities and select urban markets throughout the United States. Headquartered in Plano, Texas, LHP is owned by affiliates of private equity firm CCMP Capital Advisors, LLC and the CPP Investment Board as well as members of management and the board of directors. For more information, please go to www.lhphospitalgroup.com.

Currently, LHP partners with and manages two other hospitals and recently formed a joint venture with the Seton Family of Hospitals in Texas to construct, own and manage a hospital together in Harker Heights, TX.

What about LHP's leadership?

Several members of the LHP leadership team have been closely involved with creating this new joint venture, including:

• Dan Moen, CEO, LHP Hospital Group, Inc.
  
• Jim Shannon, EVP of Development, LHP Hospital Group, Inc.
  
• Rebecca Hurley, EVP, General Counsel and Secretary, LHP Hospital Group, Inc.

In addition to an experienced executive leadership team, LHP has a highly talented and deep network of corporate leaders that span a variety of different areas of expertise. From clinical operations and physician operations to compliance and risk management to information systems and human resources to revenue cycle management and managed care contracting, LHP has a team of dedicated corporate resources available to help each of its hospitals.

Does LHP have any other facilities in the northeast?

Yes, LHP has formed a joint venture with Hackensack University Medical Center to acquire, own, and operate Hackensack University Medical Center – Pascack Valley in Westwood, New Jersey that is awaiting regulatory approval at this time.

Will Waterbury Hospital become an investor-owned hospital because of this partnership?

Yes. The legal structure of the joint venture makes it a taxable entity and both Waterbury Hospital and Saint Mary's will be considered investor-owned hospitals.

How does this affect the Saint Mary's Joint Venture approval process?

The Saint Mary's regulatory approval process is already underway. Saint Mary's has filed a Certificate of Need application with the state and anticipates establishing a joint venture with LHP in the next few months. Additional regulatory approvals will be required to include the contribution of The Waterbury Hospital to the joint venture and the building of a new replacement facility.

What are the plans for the new facility? What is the timing? What are the details, such as number of beds?

Currently, LHP/Saint Mary's is focused on gaining approval for the Certificate of Need filed by Saint Mary's and beginning the application process for The Waterbury Hospital. Those approvals are expected to take months. Following those approval processes, planning for the new facility will begin.

Where will the new hospital be located?

A site has not been selected. The existing sites will be evaluated for suitability as will new locations as a part of the planning process.

Will you close one or both of the other two hospitals?

Both hospitals will continue to operate on their existing campuses until a replacement facility is completed.

Will this combined joint venture eliminate competition in the market?

We are fortunate to live in an area where quality health care is readily available. The two hospitals are located in a market surrounded by numerous other hospital providers within a 30-minute drive. Those options will remain available to patients and physicians to choose.

This joint venture, however, will allow both hospitals to be stronger together for the Greater Waterbury community and allow leadership and caregivers to focus on improving services, quality and access to health care.