Legal concerns have led to a four-month delay in the planned lease of a California public hospital to Columbia/HCA Healthcare Corp. and likely will keep the deal from closing for several more months.
Columbia agreed last September to lease 142-bed Fallbrook (Calif.) Hospital from the Fallbrook Hospital District near San Diego. The 30-year lease was to start last Oct. 1.
Local observers and published reports suggest Columbia has been slow to close the deal because it's looking for a way to back out of the agreement. The deal was signed before Columbia decided to downsize its hospital holdings by one-third in a major restructuring plan announced in November (Nov. 24, 1997, p. 2).
But Fallbrook and Columbia officials say that's not the case. They blame sticky legal questions facing district hospital deals in California with private hospital operators.
"We want to go through with this transaction, and Fallbrook wants to go through with it as well," said Columbia spokesman Jeff Prescott.
The latest delay came Jan. 30, when the Fallbrook district board voted 3-0, with two abstentions, to submit the terms of the deal to San Diego County Superior Court for a process known as legal validation. In that procedure, a Superior Court judge would examine the terms of the deal for legality and disclose the exact terms to the public.
If the court finds the deal to be lawful and no legal challenges to it are filed, it would be upheld and most likely closed, said Corey Seale, chief executive officer of Fallbrook Hospital District.
"Quite frankly, Columbia required this. They wanted some form of indemnification," Seale said.
He added that Columbia executives were concerned by lawsuits recently filed by four hospital districts to break leases with private operators. Prescott confirmed that position.
The lawsuits have all claimed leases should be voided because of potential conflicts of interests surrounding the original votes to approve them.
Meanwhile, there is concern the legal validation sought by Columbia could take longer than the 60 days expected by Fallbrook's attorneys. "Courts run on their schedule," Prescott said.
The 60-day timeframe has also been questioned by Andrew Perry, M.D., a district board trustee who abstained from the vote. Perry did so because he felt the district was not pursuing alternatives to leasing the facility.
"My secondhand knowledge of the courts is that this could take six months or more," Perry said. "I'm concerned that we need to look at other options."
Fallbrook agreed to the lease in part because of ongoing financial difficulties. As part of the lease agreement, Columbia would pay the district $4.4 million in cash upfront, with no annual lease payments. The amount could be lower than $4.4 million if Fallbrook has less than $1.5 million in working capital on hand.