Voters in Amarillo, Texas, next week will decide whether to accept what officials are saying would be the largest amount of cash paid for a single public hospital.
Yet, the $120 million proposal has sparked controversy over whether it's in the community's best interest to sell the tax-supported hospital to an investor-owned chain based in King of Prussia, Pa.
"This is the biggest event to hit Amarillo in many years," said William Webster, president and chief executive officer of the facility up for sale: 350-bed Northwest Texas Hospital. Webster favors the deal, saying the hospital must be part of a larger system to remain competitive.
After the hospital went out for bids last year, Universal Health Services was named the winner. Discussion of the proposed deal, which residents will vote on May 4, fills the news columns of the daily Amarillo News-Globe and is a popular topic for argument throughout the Panhandle city of about 160,000 residents.
The vote is a nonbinding referendum, which will be followed by a vote by the City Commission.
The deal is significant in its size and also in its structure, which could provide a model for the sale of other tax-exempt hospitals that provide a significant amount of indigent care in their communities.
The hospital is owned by the Northwest Texas Hospital District, which receives about $8 million in annual tax support. By selling the hospital, the district will receive $120 million in cash from Universal, which owns 13 other acute-care hospitals. Three of them are in southern Texas.
After repaying debt and settling working capital, the hospital district will combine proceeds with its own cash reserves for a total trust fund of $187 million.
From that trust fund, the hospital district will pay Universal an average of $7.5 million annually for 25 years to provide indigent-care services.
That won't cover the entire cost of indigent care, though. Webster said the hospital now provides about $20 million in charity care, and Universal will be obligated to provide charity care throughout the 25-year agreement. Officials say most of the indigent-care payments from the trust fund will go to physicians and other healthcare professionals who treat indigents at the hospital.
Until two months ago, Amarillo was a three-hospital town. That changed when two of the hospitals, High Plains Baptist Health System and St. Anthony's Hospital, merged in February. As part of the merger, the CEOs of both facilities stepped down. The new CEO, John Hicks, starts May 1. Hicks formerly ran North Mississippi Medical Center in Tupelo, the state's largest hospital, and most recently was CEO of Healthwest Regional Medical Center, a Columbia/HCA Healthcare Corp. facility in Phoenix.
With the two tax-exempt hospitals now one and controlling about 60% of the city's inpatient beds, proponents of the sale say the onus is on Northwest Texas to stay competitive.
But how it should do so is a matter of opinion.
Although the hospital has been profitable and has relatively little debt-$7.5 million-a financial analysis conducted for the facility shows it could run into financial problems in the future.
The hospital reported net income of $17.2 million in 1995. However, after subtracting tax subsidies, Medicaid disproportionate-share payments and investment income, the hospital actually is losing $7 million a year. That's the analysis of Josh Nemzoff, a Nashville, Tenn.-based merger and acquisition consultant the hospital district hired.
Medicaid disproportionate-share funds have been a large source of income to public hospitals in Texas, but continuation of the program is questionable as Congress debates moving Medicaid to block-grant funding. Such a funding scheme could interrupt the flow of about $12 million to the hospital district.
Nemzoff also contends the city of Amarillo will have quite a nest egg as the capital from the sale grows over the years. By investing the $187 million and erasing the tax support with a tax-paying hospital, "the bottom line is that in 25 years this deal will have generated over
$1 billion in value to the community," he said.
Universal has bought large ads in the local newspaper that feature a lot of white space and read: "This is what it will cost you in hospital taxes if you vote for NWTH May 4th." The ads conclude: "Universal Health Services. Good for Northwest Texas Hospital. Good for you."
However, opponents put a different spin on the proposed sale.
"They know they're buying a gold mine," said City Commissioner Dianne Bosch. She opposes selling the hospital but is the lone dissenter on the five-member commission.
"Universal has said they will make back their money in four years," Bosch said. When she pressed them about how, she said they told her better management and lower supply costs would enable the hospital to be more profitable. "The interesting thing about it is that they're keeping the same management," she said, noting that CEO Webster will keep his post.
She contends there's no reason to sell a profitable hospital and that the city of Amarillo may be left holding the bag if indigent-care costs rise. In Texas, counties are responsible for indigent care. If those costs rise in Amarillo, Bosch believes that Universal may come back and demand more funding.