A not-for-profit hospital consortium's $1.2 billion deal to buy 22 hospitals from Columbia/HCA Healthcare Corp. is drawing intense examination from consumer groups and federal regulators.
Most of the scrutiny centers on a potential monopoly-in-the-making in the Johnson City, Tenn., area.
But the San Francisco office of Consumers Union took a different tack last week with a letter to 21 state attorneys general.
The letter warned that some Columbia hospitals now being sold, including at least one of the 22 in the consortium deal, may have been undervalued in Columbia's purchase of them. If hospitals were bought at fire-sale prices, public charitable assets may have been inappropriately shifted to Columbia. Consumers Union wants the attorneys general to review the various Columbia deals and seek to pass on any unfair gains to charitable foundations.
Columbia spokesman Jeff Prescott, who was traveling late last week, had not seen Consumers Union's letter, but he said he expects the attorneys general to "make appropriate" decisions.
Meanwhile, Johnson City (Tenn.) Medical Center, one of eight consortium members, resubmitted its request to the Federal Trade Commission for antitrust clearance to buy six of the Columbia hospitals.
Johnson City Medical said it voluntarily refiled its required pre-merger notification documents to give the FTC more time to complete its review of the transaction. "It's just that (FTC officials) indicated that they were having difficulty getting all the information read (within the initial 30-day window)," said Dennis Oerly, director of marketing and public relations at Johnson City Medical. Oerly said the FTC's Atlanta office is reviewing all the consortium members' deals.
But employers in the Johnson City community interpreted the hospital's action as a way of forestalling a "second request" for information by the FTC. Such a request, which comes after the initial 30-day waiting period, typically signals the launch of an antitrust investigation involving massive document submissions to the agency.
"Unless (the hospital) thought there was going to be an expanded review, there would be no reason to do this," said Donna Miller, president and chief executive officer of Tri-Cities Health Alliance. Trihealth, as it is known, is an employer group whose 78 members represent some 79,000 people.
An FTC spokeswoman in Washington would only confirm the transaction is being reviewed.
Trihealth is seeking additional information on the deal's impact on competition, prices and quality, Miller said. Employers are particularly concerned that Johnson City Medical has a "lock" on healthcare in the region. They fear it can't assume what amounts to $25 million a year in additional debt over 30 years without raising prices, she said.
Some physicians also are questioning the deal. Mary Jane Gibson, M.D., president of the 200-member Tri-County Medical Association, serves as chief of staff at Johnson City's Northside Hospital, one of the six hospitals Johnson City Medical hopes to buy from Columbia. If Northside were closed, that would leave one hospital in Johnson City, she said.
A spokeswoman for the Tennessee attorney general's office would neither confirm nor deny that it is investigating the deal.
Since May, most, if not all, of the eight consortium members have filed pre-acquisition papers with the FTC, said David Cyganowski, co-head of Salomon Smith Barney's healthcare finance group. In recent weeks, consortium members' primary focus has been on filing for antitrust clearance and completing due diligence, he said. It is hoped the sales will be completed in the third quarter.