One of the more bizarre and acrimonious relationships between a hospital and its landlord concluded last month when American Medical International bought the hospital it operates in Kenner, La., for $26 million.
Since its opening in 1985, AMI St. Jude Medical Center has been the focus of legal and financial battles between Dallas-based AMI and the hospital's local landlord, Liljeberg Enterprises. Liljeberg filed for bankruptcy reorganization in 1993, and one of its creditors, Travelers Corp., subsequently sued to force the sale of St. Jude on Oct. 28.
AMI was the only bidder for the 300-bed building in suburban New Orleans last month, and its bid was the minimum required-two-thirds of the appraised value-under the terms of the public auction.
AMI's purchase shows "a lot of faith and trust that AMI is going to be around," said Steven Greene, who was appointed as St. Jude's chief executive officer three months ago. "After years and years of litigation, people wonder if you're going to be in it for the long haul."
That will change now, he believes, and as a signal of what's to come, AMI likely will rename the hospital to give it a new image. AMI also hopes to buy a neighboring 182,000-square-foot medical office building from Travelers. Liljeberg also previously owned that building but lost it when Travelers foreclosed on a $25 million loan.
Although St. Jude has been a drain of AMI's earnings for years, the New Orleans market carries new importance for the company. AMI is being acquired by National Medical Enterprises to form the nation's second-largest investor-owned hospital chain. Santa Monica, Calif.-based NME, which has five New Orleans-area hospitals, has identified New Orleans as one of the key markets it will target after the merger.
Although hundreds of hospitals operate out of buildings owned by other companies, the St. Jude experience shows how such a deal can go wildly awry.
AMI inherited the project when it bought Lifemark Hospitals, a Houston-based chain, in 1983. The deal between Lifemark and Liljeberg committed AMI to fund St. Jude's construction costs and lease the hospital from Liljeberg, which owned the certificate of need, for 25 years.
The relationship between AMI and Liljeberg quickly degenerated into lawsuits and various disputes over the medical office building, Liljeberg's operation of the hospital pharmacy and numerous other matters.
For example, Wayne McElroy, St. Jude's former chief financial officer, said he remembers a conversation in which John Liljeberg, the company's founder, asked for a discount on hospital charges for his employees. When Mr. McElroy balked, Mr. Liljeberg grew angry and "told me he'd meet me downstairs," Mr. McElroy said. Mr. McElroy said he didn't take up the challenge, adding, "I had no idea whether he went downstairs or not."
What's more, Mr. McElroy charged that he was threatened with physical harm after refusing business deals from people associated with Liljeberg. However, he said, he refused to buckle under. Mr. Liljeberg could not be reached for comment on Mr. McElroy's remarks.
In 1993, AMI St. Jude lost $8.8 million on revenues of $34 million, according to HCIA, a Baltimore-based healthcare information company. In 1992, the hospital lost $9 million on revenues of $39.6 million.