The city of Massillon, Ohio, has filed a lawsuit challenging the right of Massillon Community Hospital to sell its assets to a for-profit venture of Columbia/HCA Healthcare Corp.
The squabble over a 1905 deed restriction adds to Columbia's headaches in Ohio, where the for-profit giant faces what appears to be mounting public animosity. The company also is facing similar problems in other markets (See story below).
The hospital told MODERN HEALTHCARE*in January that it had resolved its deed dispute with the city (Jan. 13, p. 23). But that was not the case, according to city officials, who say they want to protect the hospital's $31.6 million in reported assets. Those assets were built with local taxes and charitable contributions.
A judge will consider the validity of a deed clause that gives the property to the city if it is not used to operate a not-for-profit general hospital. A hearing is scheduled for April 28 in the Stark County (Ohio) Court of Common Pleas.
The hospital maintains that the city waived its interest in 1977 when it transferred the deed to Stark County as security for $13.5 million in bonds. The county issued the tax-free bonds to fund a renovation and expansion project.
The city claims the hospital wrongly advised it to transfer the deed, which was not returned when the bonds were paid off in 1985.
If the clause is deemed valid, the city council can decide whether the hospital needs to be sold. The city would then be obliged to seek bids, said Council President David A. Smith.
Columbia-CSA, a joint venture of Columbia and the Cleveland-based Sisters of Charity of St. Augustine Health System, has agreed to establish a $22 million community foundation in exchange for the assets, the hospital said.
Smith said when it came to potential buyers, the hospital "narrowed the scope down arbitrarily." Spokesman Jerry Rizor acknowledged that the hospital did not seek bids, but he said it held discussions with two nearby hospitals, Doctors Hospital of Stark County in Massillon and Aultman Hospital in Canton.
Massillon would be the fifth Ohio hospital in the Columbia-CSA joint venture. City officials have been deluged with published articles sent by their constituents about Columbia's business practices.
Just last week, the New York Times reported that FBI agents were examining Columbia's deals to acquire control of hospitals in northeast Ohio. The report did not indicate the focus or the stage of the alleged probe, and spokespeople for Columbia and Sisters of Charity both denied knowledge of any such probe.
However, northeast Ohio has been the site of some of Columbia's most controversial deals. Among them was the 50-50 joint venture with CSA in 1995. Twelve board members of Timken Mercy Medical Center in Canton were dismissed after they refused to approve a letter of intent with Columbia. Another was Columbia's recently abandoned agreement to buy the assets of Cleveland-based Blue Cross and Blue Shield of Ohio, in which trustees and Blues officials negotiated millions of dollars in benefits for themselves.
Last week, Columbia critics in Ohio suggested that the controversies caused Columbia to make paltry progress toward the statewide network promised in a 1995 speech by President and Chief Executive Officer Richard Scott.
In the last 16 months, Columbia has completed only one hospital transaction, the acquisition of Saint Luke's Medical Center in Cleveland by its joint venture with CSA.
The failed Blues deal, announced in March 1996, had the potential to give Columbia a management role at six hospitals: four-hospital Meridia Health System, based in the Cleveland suburb of Mayfield Heights; St. Luke's Medical Center in Cleveland, and Riverside Hospital in Toledo.
In March, Columbia announced its first hospital deal in Ohio since mid-1996, with Columbus-based Doctors Hospital Foundation, which runs three hospitals (See chart, p.14). It would be Columbia's first full-asset hospital purchase in Ohio. In the northeast part of the state, Columbia has been restricted in making full-asset purchases because its joint venture agreement gives Sisters of Charity the right of first refusal, said Karen Malone, a spokeswoman for Columbia's Ohio division.
Doctors, an osteopathic system, signed a letter of intent with a definitive agreement expected by September. The system said no price has been set.
Doctors reported revenues of nearly $258 million for the year ending Dec. 31, 1996, with a profit margin of 4%-5%. The system declined to disclose its net income or assets. According to HCIA, a Baltimore-based healthcare information company, Doctors reported total assets of $138.6 million in 1995.