The possibility of bankruptcy was facing financially troubled Cape Coral (Fla.) Hospital last week, after Naples, Fla.-based Health Management Associates abruptly terminated its agreement to acquire the 201-bed hospital.
A bankruptcy filing could spur negotiations between Cape Coral and its creditors and make the hospital a more attractive acquisition. Possible buyers would include HMA, in a renegotiated deal, or Cape Coral's former suitors Lee Memorial Hospital, a 627-bed public facility in nearby Fort Myers, Fla., or Columbia/HCA Healthcare Corp. Lee Memorial has an offer on the table, and Nashville, Tenn.-based Columbia also has expressed interest in renewing talks.
"In this type of situation....bankruptcy moves from a possibility to a sound business probability....It's the only way to clean up this mess," said Peter Young, a strategic issues healthcare analyst based in Cape Coral.
"No one else can step in (other than Lee Memorial or Columbia) because you can't make the numbers work (as an independent)," Young said.
After HMA terminated its agreement, Cape Coral's board met in a closed-door executive session to discuss its options. However, Joseph Zeterberg, M.D., the hospital's chairman, declined to comment on Cape Coral's next step.
Beset by more than $28 million in losses over the past two years, Cape Coral's future has been in limbo since a management scandal last year led to the firing of its three top executives.
HMA, which in January agreed to acquire Cape Coral for an unspecified amount, cited three reasons for pulling the plug on the deal. They are:
Cape Coral's failure to satisfactorily negotiate down a $10 million fine the Internal Revenue Service slapped on the hospital as a result of its alleged misspending of tax-exempt-bond proceeds.
The hospital offered to settle the fine with the IRS for $6.1 million, said Cornelius Catena, Cape Coral's chief executive officer, but received no response.
An internal hospital audit that indicated Cape Coral might have to repay Medicare up to $10 million in overbillings. The audit also revealed the hospital's real estate assets were overvalued.
A new lawsuit filed by two former employees who charge the hospital improperly revised its pension plan and violated federal labor laws. However, Catena said the lawsuit has no merit.
Lee Memorial planned a merger with Cape Coral last year, but the Federal Trade Commission challenged the deal. Sensing a protracted legal battle and trying to assure nervous bondholders, Cape Coral withdrew from the agreement and signed the deal with HMA. Lee Memorial and Cape Coral eventually beat the FTC in various federal courts.
A deal with Columbia might face antitrust issues with the FTC, Young said. Columbia operates an ambulatory-care center across the street from Cape Coral, as well as two hospitals in Lee County. HMA said it will manage the hospital until the board makes new plans.