Fearing their hospital's physician owners were being wooed by a for-profit chain that ran the competing facility in town, the administrators of Doctors Regional Medical Center in Poplar Bluff, Mo., devised a plan to keep their hospital independent.
They launched an employee stock ownership plan, or ESOP, to cut hospital workers in on the action and raise some needed capital.
That was three years ago.
The same physician owners of Doctors Regional now want to sell out to the successor to the for-profit chain they had wanted to continue to compete with in 1995.
Today the physicians who control the 187-bed facility are busy negotiating the sale of Doctors Regional to Santa Barbara, Calif.-based Tenet Healthcare Corp. And they're battling antitrust challenges from state and federal authorities to do it.
Last year Doctors Regional signed a letter of intent to merge with Tenet-owned Lucy Lee Hospital, the only other private, acute-care facility in Butler County.
The Federal Trade Commission and the Missouri attorney general each filed separate antitrust complaints April 17 against the hospitals in U.S. District Court in Cape Girardeau, Mo. The complaints, which are expected to be consolidated, both claim the merger would "create a virtual monopoly in an eight-county area and likely will increase hospital prices and reduce quality."
William Bradley, senior vice president of operations for Tenet's central region, said merger talks between Doctors Regional and Lucy Lee date back to the days when American Medical International owned Lucy Lee. AMI merged with National Medical Enterprises to form Tenet in 1995.
He describes the onset of talks as "more of a mutual approach."
That's not how a Doctors Regional official described it when AMI started talking to some of the hospital's physician owners in 1995.
That year, Doctors Regional placed about one-third of the hospital's stock in an ESOP. The rest of the stock is owned by Poplar Bluff Physicians Group, a for-profit company controlled by 30 local doctors.
At that time, the hospital's chief financial officer told MODERN HEALTHCARE that creating the ESOP was a way to ward off AMI, which was making overtures to physician owners to acquire Doctors Regional.
"My biggest fear was that they were going to buy the hospital, shut it down and put 600 people out of work," CFO Jack Montois said at the time (Feb. 20, 1995, p. 42).
Doctors Regional seems to have changed its tune. After Montois left in late 1995, Doctors Regional held merger talks with Lucy Lee on and off, culminating in a letter of intent to sell that both sides signed in April 1997.
"That (Feb. 20, 1995) statement was Jack's own statement," said Daniel Kelly, who has been chief executive officer of Doctors Regional since 1993. "It's not reflective of us as an institution. The key word back then was competition. The key word today is collaboration."
It has not been decided how much the physician owners or employees stand to gain from the sale for their shares of hospital stock, but they will receive cash, Kelly said. Kelly owns some shares in the ESOP but said he didn't know how much.
If the merger wins court approval, services at the two hospitals would be consolidated, Bradley said. He didn't rule out the possibility of physically merging the campuses and laying off workers.
"A committee would be formed to look at what makes the most sense, long-term," Bradley said. "We wouldn't (merge campuses) for at least three or four years.
"Anytime you have a merger, you have a realignment of (human) resources. But any job loss will be offset by the new services, which will create a net gain in jobs."
Financial worries may have driven Doctors Regional to concede to its persistent suitor.
The hospital reported net income of $1.3 million on revenues of $41 million in 1996, more than four times its net income of $278,000 on revenues of $38.9 million in 1995, according to the most recent data available from HCIA, a Baltimore-based healthcare information company.
Although the hospital's financial outlook appears bright, Kelly said he fears the future may not be so sunny.
"Our balance sheet is a snapshot. It does not tell the whole story," Kelly said. "We were able to sustain our profitability by becoming very efficient. We don't continue to have the capability of becoming a more efficient organization. We will have to do something different as we roll forward."