A Tyler, Texas, hospital and a start-up hospital company have formed a partnership to buy a struggling small-town hospital that had been at odds with its physicians.
Principal Hospital Co., Nashville, Tenn., and Trinity Mother Frances Health System, Tyler, submitted the winning bid to acquire Memorial Hospital in Palestine. Detailed terms were not disclosed, but it was known that the deal involves repaying $16.4 million in bond debt.
The deal ensures that "complete health services remain in Palestine," said J. Lindsey Bradley Jr., chief administrative officer for Trinity Mother Frances. The Tyler system, which includes 287-bed Mother Frances Hospital and about 90 physicians, is located 44 miles away from Palestine. Although Memorial will change its status from tax-exempt to tax-paying, the partners pledged to continue charity-care levels at the hospital. Formerly a county hospital, Memorial is now owned by a private foundation.
Memorial had been at the center of a long and expensive antitrust suit that was settled just three months ago. In 1994, the East Texas hospital sued a physician group, which subsequently countersued the hospital board and its top executive (Feb. 12, p. 17). The hospital was profitable in 1994 but lost money in 1995, Bradley said. He declined to release exact figures for 1995.
After the settlement, the hospital's chief executive officer, Robert Charron, resigned, and the board of trustees sought bids for the hospital. Among the bidders was OrNda HealthCorp, which owns Palestine's other hospital, Trinity Valley Medical Center; Champion Healthcare Corp., an investor-owned chain based in Houston; and East Texas Medical Center, which is Trinity's competitor in Tyler.
This is the first deal for venture-capital-backed Principal, which was launched in February by former Community Health Systems executive Martin Rash. Community is a Nashville-based hospital chain that focuses on rural hospitals. "This is such a strong partnership," said Rash, noting that Principal hopes to do other similar deals.
Although Columbia/HCA Healthcare Corp. has entered several joint ventures with tax-exempt facilities, those types of ventures are rare in rural areas.
The Palestine hospital will be governed by a four-person board on which Principal has three seats. However, many key decisions, such as hiring a CEO, will have to be unanimous, Bradley said.