Quorum Health Group will go ahead with its purchase of 226-bed Midlands Community Hospital in Papillion, Neb., after the state of Nebraska dropped its opposition to the sale.
The state's denial of Quorum's certificate-of-need application was noteworthy because it's believed to have been the first CON denial based on the purchaser's ownership status.
Quorum is a for-profit hospital chain based in Nashville, Tenn. Midlands is a freestanding not-for-profit hospital operated by a local corporation (See related story, p. 62).
"We are pleased that we have been granted a CON and can now proceed to another level of relationship with Midlands Community," said James Dalton Jr., Quorum's president and chief executive officer.
Last June, the Nebraska Health Department denied the CON application because the sale would convert the hospital into a for-profit facility from a not-for-profit facility. That, the state said, would raise the hospital's operating costs, which would be passed along to consumers through higher prices.
Quorum proposed to buy Midlands for $11.4 million through a limited partnership formed by a Quorum subsidiary and local physician investors.
The department said higher operating costs would come from property taxes, higher debt-service costs and physician ownership, which created a financial incentive for physicians to admit more patients to the hospital than may be medically necessary.
Last September, a Nebraska CON review committee upheld the department's decision, and Quorum subsequently sued the state.
Last month, Lancaster County District Judge Jeffre Cheuvront reversed the state's decision and said Quorum should get its CON. He said the state's cost figures were inaccurate and that there was no evidence to support the state's position linking physician ownership and costs (May 30, p. 16).
On June 14, the health department said it wouldn't appeal Judge Cheuvront's decision and would grant Quorum's CON request as long as the chain obtained a fixed-rate loan to raise capital to acquire the hospital. A fixed-rate loan would make Midlands' debt-service costs less variable.
The chain agreed to the terms, and a spokeswoman said the deal likely will close by the end of August.
But because of the length of the CON dispute, Quorum will buy the hospital outright for $11.4 million and work out the investment details with local physicians later, she said.