Memorial Hospital in Chattanooga, Tenn., last week formally rejected a $154 million buyout offer from Erlanger Medical Center, a competing hospital in Chattanooga.
"We believe that which makes Memorial unique cannot be bought," Memorial said in a written statement. "Our religious grounding influences every key decision we make at Memorial. It cannot be preserved by any outside agency, particularly the governmental entity that Erlanger represents."
Erlanger is a 587-bed public hospital. Memorial is a 296-bed private not-for-profit hospital operated by Sisters of Charity of Nazareth Health System.
Erlanger made its offer on Dec. 19, 1995, and was immediately rejected by Memorial. Memorial's board made it final on Jan. 9. In the fall of 1994, Memorial offered to buy Erlanger, but Erlanger rejected the offer.
The hospitals are still collaborating on a joint venture to build a 28-bed women's hospital in Chattanooga.
But relations between the two institutions appear to have chilled. An agreement between Erlanger and Chattanooga Mayor Gene Roberts to provide healthcare to city employees may violate state law and could cost taxpayers millions, Memorial alleges.
"Had there been more competition, the city may have saved itself another $1.5 million to $2 million," said Clark Taylor, Memorial's president, who added that costs at his hospital are 19% lower than at Erlanger.
Taylor said a "back-room deal" struck between Roberts and Erlanger may have been done outside the state's rules for accepting bids for goods and services.
Roberts said Erlanger approached the city with an offer to replace the current plan with Blue Cross and Blue Shield of Tennessee with lower employee healthcare costs over the next three years, totaling $1 million in savings.
The arrangement, signed on Jan. 8, also guaranteed the city's costs would rise no more than 5% over the next three years. The change takes effect April 1.
Under contract conditions, however, the city's 2,400 employees and their families may only use Erlanger or facilities and doctors within its network.
Under the Blues plan, city employees had access to several hospitals and doctors in the city.
The agreement was not only unfair to other area hospitals but will actually give city employees fewer healthcare choices and cost taxpayers more than what other providers may have offered, Taylor contends.
Memorial said it may challenge the arrangement in court after determining whether Erlanger is exempt from certain contracting procedures under state law because it is a public hospital.
Blues officials said they were not given an opportunity to match Erlanger's offer and may support Memorial in its fight. The Blues will still compete for processing health claims for the city.
David Burda with Associated Press reports