Dealing the nation's largest for-profit hospital chain a legal blow last week, a federal judge in Orlando, Fla., said Columbia/HCA Healthcare Corp. must sell its 50% stake in a strategically located Florida hospital to a competing not-for-profit hospital system.
The judge said Healthtrust, a for-profit chain Columbia acquired in April 1995, breached a joint venture agreement with Orlando Regional Health System to operate South Seminole Hospital in Longwood, Fla.
Healthtrust and Orlando Regional created the 50-50 venture in 1992 to operate South Seminole. Upon its sale to Columbia, Healthtrust should have allowed Orlando Regional to buy South Seminole outright, U.S. District Judge G. Kendall Sharp said.
South Seminole, located in growing Seminole County, is key to Orlando Regional's attempt to build a network that covers the entire Orlando market.
Orlando Regional paid Healthtrust $27.5 million to buy 50% of the 209-bed hospital in 1992. It has said it would pay $8 million for the other half.
The judge will set the price based on three appraisals, one from each side and a third from a mutually selected appraiser. The parties have 90 days to submit valuations.
Last week's decision, following a trial that ended March 7, hinged on a provision in the joint venture agreement that entitled Orlando Regional to buy South Seminole outright if Healthtrust merged with any of its competitors.
The provision did not mention Columbia specifically, but the judge concluded that Columbia's 1993 acquisition of Galen Health Care qualified it as a competitor. Galen owned two hospitals in the Orlando area.
Columbia now owns or controls four hospitals in the Orlando market, including two north of State Road 50, a growing and affluent area that includes Seminole County.
Columbia announced its acquisition of Healthtrust in October 1994. According to court records, Healthtrust initially acknowledged that it had to sell South Seminole to Orlando Regional. But the parties could not agree on a price, and Orlando Regional filed suit in February 1995.
The judge said his decision was bolstered by the views of George Garrett, former Healthtrust director of development, and John Carpenter, an attorney who drafted the joint venture agreement for Healthtrust.
In December 1994, Garrett wrote a letter to Orlando Regional acknowledging that the imminent acquisition by Columbia would trigger the sale provision. Garrett testified during the trial that Carpenter agreed with that interpretation. However, Garrett, now assistant vice president of development for Columbia, testified that he now believes the provision did not apply.
Sharp denied Columbia's request that the hospital be auctioned off. The judge said such an auction would allow Columbia, with its vastly greater resources, to outbid Orlando Regional.
The judge also wrote that legitimate antitrust concerns would be raised if Columbia were to acquire all of South Seminole. He said Columbia "has made clear its desire to purchase ORHS's interest in South Seminole and control that hospital as well."
Orlando Regional's antitrust attorney, John Cusack, accused Columbia of using "hardball tactics" to weaken Orlando Regional. Without South Seminole, Orlando Regional is the only Orlando-area system to lack an acute-care facility in Seminole County.
Cynthia Sucher, spokeswoman for Columbia's central Florida division, said Seminole County should not be treated as a distinct market.
She also said Healthtrust always has been "ready and willing" to sell its interest at a fair price.