Due diligence leads Sitka to consider escrow fund increase

Sitka, Alaska (KINY) - At the recent City and Borough of Sitka Assembly special session on Feb. 28 to discuss the sale of Sitka Community Hospital to SouthEast Alaska Regional Health Consortium, Assembly members established a target date of March 15 to release the final Asset Purchase Agreement and Lease Agreement.

In a press release, CBS states that in preparation for the release of the APA -- and as outlined by CBS Municipal Administrator Keith Brady prior to the Assembly moving into executive session -- two additional open items needed to be discussed.

One of those items included an update on a potential SCH compliance issue. Another item was the purpose and function of escrow accounts, which are typical in these kinds of healthcare affiliations to ensure any outstanding liabilities of the seller can be covered post-closing.

“Healthcare is a highly regulated industry, and it is common for legal and regulatory compliance issues to surface during the due diligence phase and possibly impact affiliation agreements,” said Brady. “Despite this, the negotiations between CBS and SEARHC continue to be productive, and the APA is nearly complete, with a few outstanding items requiring further review.”

During due diligence, the CBS negotiating team discovered that some SCH arrangements might not be consistent with applicable statutory or regulatory provisions.

According to the borough, the municipality is in the process of evaluating whether the city could have financial exposure or liability under these provisions and carrying out an analysis to answer these questions. It is common for these types of issues to arise during due diligence, especially in small critical access hospitals like SCH.

“We are pleased SEARHC is still at the table with CBS and negotiating in good faith,” Brady said. “Both parties are operating under the assumption that the basic fundamentals of the original agreement will remain intact and definitive solutions will be identified to address this issue.”

More information will be available and shared openly at an open session regarding the SCH-SEARHC affiliation on March 20.

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