Legal problems last week dogged HealthTrust-The Hospital Co. as it continued to work toward its $1 billion acquisition of Epic Healthcare Group and two other large hospital deals.
HealthTrust lawyers now are fighting legal battles in Mississippi, Tennessee and Utah over proposed acquisitions of hospitals in those states.
The most recent lawsuit was filed last week in Gulfport, Miss., where the local public hospital contends it was cut out of an earlier deal to buy the city's only other hospital from Dallas-based Epic.
Executives of 302-bed Memorial Hospital said Epic agreed to sell 120-bed Garden Park Community Hospital to Memorial for $23 million before Nashville, Tenn.-based HealthTrust agreed to buy Epic in January.
W. Ron Burton, Memorial's administrator, said Epic executives had insisted on not signing a letter of intent because the company said it didn't want to report the transaction to the Securities and Exchange Commission. However, he said he had verbal agreements with Epic President Kenn George, and Epic executives had agreed to written term sheets on the deal. Epic executives referred questions to HealthTrust.
Mr. Burton said Epic executives indicated to him that the Gulfport hospital would be excluded from the HealthTrust acquisition package and handled as a separate transaction. But in mid-February, he said he learned that HealthTrust was stopping the deal.
Earlier this month, Mr. Burton said he talked with HealthTrust executives, who said they would sell Garden Park but wanted at least $5 million more and perhaps as much as $15 million more than the original price.
"We felt it was sort of a hostage situation," Mr. Burton said.
Paula Lovell, a HealthTrust spokeswoman, said HealthTrust executives have yet to see the lawsuit. However, she said Epic didn't sign a letter of intent with Memorial. She added that HealthTrust hasn't declined to sell the Gulfport facility, but executives have been unable to determine its worth for it to be sold.
Memorial has received state approval for a $40 million expansion, but Mr. Burton said acquiring Garden Park would allow the hospital to alter those plans for a savings of $11 million.
Meanwhile, in Utah, where HealthTrust plans to buy Holy Cross Health Services of Utah, $1 million in legal fees have been recorded as 15 attorneys work full-time on Federal Trade Commission requests for information.
"It's a very difficult market for the antitrust people," said W. Hudson Connery Jr., HealthTrust's senior vice president and chief operating officer.
With the deal, HealthTrust would own seven of the region's 23 acute-care hospitals, a 30% share of northern Utah's Wasatch Front market. Holy Cross operates three hospitals in the market.
However, "by any measure, the Intermountain (Health Care) market share is over 50%," Mr. Connery said. Salt Lake City-based Intermountain is a 19-hospital not-for-profit chain. He said HealthTrust is arguing that the company's increase in market share will make the market more competitive than if Intermountain remains the dominant chain.
Sources close to the deal say an FTC ruling on the Holy Cross acquisition may come early this week.
HealthTrust's other legal tangle involves its proposed acquisition of Nashville Memorial Hospital in Madison, Tenn., from the not-for-profit corporation that operates the facility (Dec. 20, 1993, p. 20). This month, a judge dismissed a suit filed by Madison's other hospital, Tennessee Christian Medical Center, which contended that the board didn't properly take bids for the hospital.
The judge ruled that only the state's attorney general has the authority to rule on a change in ownership of not-for-profit assets. The attorney general's office is expected to rule on it by March 21.
However, Tennessee Christian, which is operated by Orlando, Fla.-based Adventist Health System-Sunbelt, will appeal, said the hospital's attorney, Paul Ney. In addition, Nashville Memorial's chief of staff, William Davis, M.D., also is challenging the sale, saying he wasn't placed on the hospital's board because he opposed its sale to HealthTrust.
HealthTrust proposed creating a $105 million foundation, which will include the proceeds from the sale and other assets. Tennessee Christian offered $110 million, Mr. Ney said.