To get the best price for a hospital, trustees should put it up for bid.
Experts agree that without a bidding situation, a hospital's board can't know how much buyers are willing to pay.
Even though a hospital may receive a valuation, nearly everyone acknowledges that in some situations-given the right time and the right place-a seller can hit the jackpot.
That's how officials of Northwest Mississippi Regional Medical Center in Clarksdale, Miss., felt late last year.
Frank Foster had been chairman of the Coahoma County-owned hospital for 13 years, when the board agreed that the best thing was to put the 44-year-old hospital up for lease. Northwest Mississippi was the first hospital in the state built under the Hill-Burton Actwhich provided federal funds to construct much-needed hospitals after World War IIand was heavily dependent on government funding, receiving 80% of its revenues from Medicare and Medicaid. The future of those programs looked uncertain, and the hospital needed money to complete a renovation project and recruit more physician specialists.
So the board hired Ernst & Young for a valuation, which came back at about $20 million, Foster said. The hospital was only about $2 million in debt, which also made it attractive to bidders.
Next, a request for proposals was sent out. In response, the 194-bed hospital received bids from two investor-owned chains and two tax-exempt systems based in Memphis, Tenn., which is 75 miles away.
Health Management Associates easily clinched the winning bid. The Naples, Fla.-based chain bid $30 million up front and $1 million a year on a 30-year lease, amounting to $60 million.
"It knocked us dead," Foster said.
The other bids lagged far behind HMA's. Community Health Systems, a Nashville, Tenn.-based chain, offered $10 million up front on a 30-year lease. Memphis' two largest not-for-profit systems offered packages valued at $45 million and $30 million.
Foster believes Coahoma County can't lose. Especially since it's established a rainy day fund. Unlike other tax-exempt hospitals that have put sale proceeds into a foundation that will fund community programs, the county plunked the $30 million into a special fund that will gather interest indefinitely.