The handshake over Columbia/HCA Healthcare Corp.'s proposal to lease a public hospital in Fallbrook, Calif., has turned to finger-pointing as the deal collapsed a year after the parties signed a letter of intent to turn over the facility to the nation's largest for-profit hospital chain.
The Fallbrook Hospital District said last week it now will enter negotiations with Brentwood, Tenn.-based Community Health Systems for a lease. CHS approached 142-bed Fallbrook when negotiations with Columbia bogged down, said district Chief Executive Officer Corey Seale.
The deal is Columbia's second with a not-for-profit hospital to fall through in recent weeks. The board of directors for 253-bed Newnan (Ga.) Hospital voted 13-0 March 22 to exit a 50-50 joint venture with Columbia, according to Columbia spokesman Jeff Prescott. The letter of intent had been signed in 1996.
The Fallbrook deal collapsed April 10 when the district, which owns the facility just north of San Diego, backed out of the transaction. Fallbrook officials said they were frustrated by what they perceived to be stalling tactics from Columbia.
Seale said the final straw was Columbia's request that the parties wait 30 days to see if a legal validation of the deal by a San Diego County Superior Court judge would be challenged. The district agreed to the process in late January, and the judge validated the deal on April 3.
Columbia sought the validation, which includes a judicial review of the terms of the lease, to ensure it was valid and could withstand legal challenges. Columbia was concerned about litigation recently brought by California hospital districts to try to break leases with private operators.
"The (district) board of directors is very disappointed and displeased in the lack of progress," said Fallbrook legal counsel Jeffrey Scott in a letter to Columbia announcing it would "review other alternatives."
Observers have suggested Columbia was reluctant to pursue the lease because it no longer fit the chain's plans, which include disposing of up to a third of its hospitals as part of a major restructuring announced last fall (Nov. 24, 1997, p. 2).
But Columbia's Prescott denied his company was stalling the deal, originally expected to close last Oct. 1.
"We were looking for certain assurances that we did not receive," he said, adding that the district refused to agree that it would not challenge the lease in the future.
Seale disputed Columbia's position. "No one challenged it in the first place, and there really is no place for us to appeal," he said.
However, the CHS proposal is slightly better for the district, with a pledge to preserve current levels of services for 10 years, as opposed to three years by Columbia. Otherwise, Seale said, CHS's proposal is identical to Columbia's: a 30-year lease, with $4.4 million cash upfront and no annual lease payments.
CHS officials were not available for comment.
The district, which is more than $6 million in debt, spent about $250,000 in attorneys and consulting fees to pursue negotiations with Columbia, Seale said.
Gov. Pete Wilson signed legislation last week that would immediately require all hospital districts to seek voter approval of asset transfers to a for-profit organization-a requirement Seale said would cost the district at least $60,000.
