Community Health Systems recently got a second chance to buy Eastern New Mexico Medical Center in Roswell after Tenet Healthcare Corp. backed out of the deal.
Tenet executives blamed the pullout on adverse tax legislation being considered by the state, but Eastern New Mexico executives said Tenet bowed out after offering a reduced bid that was rejected.
Eastern New Mexico is a 158-bed public facility owned by Chaves County. The county decided to sell the hospital in 1995 because it didn't have the funds to expand the infrastructure and stay competitive and because of onerous state and county regulations.
Last September the county entered exclusive negotiations with Tenet, rejecting three other bidders, including Brentwood, Tenn.-based CHS, whose initial bid was $14 million higher than Tenet's offer.
"We were not as interested in money as we were to go with a firm that was committed to the community," said Chaves County Manager Hubert Quintana.
The Chaves County Commission accepted Tenet's proposal of $103.2 million -- $77 million in cash, $6.2 million in working capital and a $20 million pledge over five years for capital improvements.
But Quintana said that very late in the negotiations Tenet suddenly changed its bid. It asked for an unspecified discount and a sum equal to 20% of the cash it would pay upfront -- about $15 million -- to be placed in an escrow account for its reserves, he said. "It really took us by surprise, and there was no way we could agree to that," he said.
In late December, the County Commission voted unanimously to cease negotiations with Tenet and begin anew with CHS.
CHS' offer is estimated at about $117.7 million, with a final agreement expected by mid-February.
For the fiscal year ended June 30, 1996, the hospital earned $3.2 million on total patient revenues of $66.9 million.
According to Quintana, published reports and sources close to Tenet said the Santa Barbara, Calif.-based hospital chain wanted to change the terms of the initial agreement because of concern that the New Mexico Legislature was contemplating raising the sales tax on revenues of for-profit hospitals. The tax is only half the rate charged to other businesses in the state.
However, there appears to be little evidence the Legislature was considering such a move. Quintana said his staff had researched the matter and concluded the issue was not being discussed by lawmakers.
A similar conclusion was reached by the New Mexico Hospital Association.
"It has been looked at in the past, but as far as we know, nothing is going to be addressed this year," said Maureen Boshier, the association's president. "Were it to be looked at, it would probably be in the context of changing the entire tax code."
State Rep. Jerry Sandel, chairman of the House taxation and revenue committee, said, "There has been no discussion of the hospital gross receipt tax that I have heard of, and if there was, I would be against it."
Tenet officials have declined comment on the tax matter, although they maintain the company is willing to renew talks with Chaves County.
"We're aware they are going in another direction, but our offer is still on the table," said Tenet spokesman Harry Anderson.