Columbia/HCA Healthcare Corp. faced hurdles to its dealmaking in three states last week and may lose a major management contract in another.
In Nebraska, a deal to acquire Bishop Clarkson Memorial Hospital in Omaha was stymied while the University of Nebraska Medical Center asserted its right under a 40-year-old agreement to consider making an offer.
In Kansas, Columbia/HCA agreed to a joint venture with the state's largest physician group on the same day an agreement with the state's second-largest medical group fell apart.
In Florida, the city manager of Tarpon Springs raised questions about a joint venture between Columbia/HCA and the city hospital.
And in Kentucky the state announced it would rebid its contract for University of Louisville Hospital-which earns Columbia/HCA about $15 million a year in management fees-because Columbia/HCA pulled its headquarters out of the city.
Despite the snags, the president and chief executive officer of the country's largest healthcare company, Richard Scott, remained optimistic. Last week, he told MODERN HEALTHCARE he expects to complete the pending deals.
Last fall Columbia/HCA signed a letter of intent to buy Bishop Clarkson for $85 million, but now the deal is threatened by a 1953 agreement that the university says gives it first-refusal rights.
The agreement dates from when the University of Nebraska helped Bishop Clarkson acquire its current site, just north of the University of Nebraska Medical Center. As part of the land sale, the university was granted the right of first refusal if Bishop Clarkson went up for sale.
When the university raised the first-refusal issue, Bishop Clarkson's chief of staff, Timothy K. Kingston, M.D., wrote a commentary in the Omaha World-Herald slamming the neighboring hospital's "blatant intrusion*.*.*.*into a private business transaction." He also suggested that Bishop Clarkson physicians, whom he described as "the cream of the crop," would move their practices if the university hospital acquired their hospital.
Medical center officials say they're awaiting financial information before deciding whether to make a bid.
In a letter to employees last month, the medical center's chancellor, Carol Aschenbrener, M.D., said the university has a "fiduciary responsibility" to decide whether to waive its rights.
In Kansas, Columbia/HCA's proposed deal with Cotton-O'Neil Clinic, a 74-physician practice in Topeka, was terminated, although the chain said it hopes to stay at the bargaining table.
Regional Vice President John Leifer said the partnership involved "complex issues. We simply have not had the time necessary to address these issues."
"Much to the chagrin and disappointment of all of us, we felt we were running out of time," said Raymond Lumb, M.D., medical adviser for Cotton-O'Neil, the state's second-largest physician group. He declined to be specific, saying only that the two parties ran into "some obstacles that we could not surmount."
Cotton-O'Neil will open discussions with the two not-for-profit hospitals in Topeka, as well as other potential partners, he said.
However, Columbia/HCA signed another deal with 150-physician Wichita (Kan.) Clinic, the state's largest, with nine offices in the region. Columbia/HCA's Wesley Medical Center in Wichita will form a new integrated delivery healthcare corporation, sharing an equal stake with the Wichita Clinic.
Wesley is Columbia/HCA's largest Kansas hospital and was the Hospital Corporation of America flagship before the chain merged with Columbia last year.
By forming a partnership, the hospital and clinic will be "moving in the same direction on parallel tracks," said Jim Kelly, Wesley's chief executive officer.
Columbia/HCA will infuse an undisclosed amount of cash into the new corporation. The physician group will be contributing certain assets to account for its 50% share, said James Greer, M.D., the clinic's CEO.
Meanwhile, Columbia/HCA continued to try to extend its Kansas City-area hospital network throughout the state.
Confirming a long-running rumor, a system executive told local newspapers he is talking to 458-bed University of Kansas Medical Center in Kansas City about a deal, such as a joint venture or management contract. Both parties called the discussions "informal."
Columbia/HCA also is pursuing 178-bed Lawrence (Kan.) Memorial Hospital, a city-owned facility 35 miles southwest of Kansas City. The system has requested a meeting with the hospital's board this week, said Robert Ohlen, Lawrence Memorial's president and CEO.
Three times Columbia/HCA has asked Lawrence Memorial if it would consider a sale or joint venture, Ohlen said. So far, its board has refused, but he said Columbia/HCA never made a formal offer.
In January, the system told local reporters it might build its own small hospital in the area.
In Florida, Tarpon Springs City Manager Cost Vatikiotis questioned a deal in which Columbia/HCA would be managing partner and have 50% interest in Hellen Ellis Memorial Hospital. The hospital is now leased from the city by a private foundation, which would continue to own 50%.
Under the letter of intent, the hospital was valued at $2 million, which was figured by subtracting debt of $28 million from the asset value of $30 million. The partnership would pay $160,000 in rent for 30 years, which amounts to 8% return on the $2 million.
"One of the first questions that comes to mind is that if the hospital had a bond debt of $30 million, does that mean the city would let the partnership have the hospital rent-free?" Vatikiotis said. "I believe the answer is obvious."
The deal requires voter approval.
In Louisville, Columbia/HCA officials knew that moving their headquarters to Nashville, Tenn., last month might jeopardize the chain's contract to manage the university hospital. Last week, state Finance Secretary Crit Luallen made it official, telling the Louisville Courier-Journal that the contract was an "economic development tool" designed to keep the company in town.
Although state officials claimed the University of Louisville was sweetened financially to keep Columbia/HCA in Kentucky, Scott said, "It's a fair transaction to everybody."
Canceling the contract could be expensive for the state as well. Columbia/HCA has put more than $20 million in capital into the hospital, for which the state must reimburse it, in addition to a $1.5 million termination fee.