After finding "no credible evidence" that physician ownership increases costs, a Nebraska state judge has reversed a ruling by the Nebraska Health Department that denied the proposed sale of a not-for-profit hospital to a for-profit hospital chain.
The state's decision was believed to be the first certificate-of-need denial based on the for-profit ownership status of a potential buyer.
A Health Department spokeswoman said the department has yet to decide whether to appeal the case, which involves the proposed sale of 226-bed Midlands Community Hospital to Quorum Health Group, a Nashville, Tenn.-based hospital chain, for $11.4 million. Midlands is a not-for-profit facility operated by a local corporation. It's located in Papillion, Neb., a growing Omaha suburb with a population of 12,000.
Under the acquisition plan submitted to the state for CON approval, Quorum would be the general partner in a limited partnership that would own the hospital. The partnership would sell limited partnership shares in the company to local physicians.
Last June, the health department denied the CON, ruling that the sale would lead to higher prices because the hospital would have higher costs. The higher costs would stem from higher debt-service payments and property taxes. The state also said the hospital would have higher costs, in part because physician investors would have a financial incentive to admit more patients to the hospital than might be necessary.
Quorum appealed the decision, but the state's Certificate of Need Review Committee upheld the department's decision last fall (Sept. 13, 1993, p. 12).
Quorum then sued the state, and a trial was held last month. On May 17, Lancaster County District Judge Jeffre Cheuvront sided with Quorum.
Judge Cheuvront disputed the state's figures, concluding that the sale would lower the hospital's annual operating costs by more than $300,000 per year. He also said there was "no credible evidence" to support the claim that physician ownership would increase costs.
A Quorum spokeswoman said the firm was pleased with the decision and would close the sale 90 to 120 days after the case ends.