CHARLESTON, S.C. -- Although for-profit Columbia/HCA Healthcare Corp. and the state-run Medical University of South Carolina never consummated their controversial lease agreement, the effects of the proposed deal have forever changed the Charleston market.
The planned lease of MUSC to Columbia acted as a major consolidating force, driving rival not-for-profit hospitals into one another's arms.
The lease would have brought Charleston's university hospital, the mammoth 587-bed MUSC Medical Center, along with its Institute of Psychiatry and MUSC Children's Hospital, under the same corporate control as Columbia's three hospitals in the Charleston market.
Columbia's hospitals are 273-bed Columbia Trident Medical Center in Charleston; 99-bed Summerville (S.C.) Medical Center, 22 miles northwest of downtown Charleston; and 131-bed Colleton Regional Hospital in Walterboro, S.C., 44 miles west of downtown Charleston.
Although MUSC and Columbia had put the deal on the back burner a long time ago, both parties let the issue of whether a for-profit could run a state-affiliated hospital go all the way to the state Supreme Court before saying they were officially parting ways.
But the approval they had received earlier from the state Legislature helped open the door to other alternatives for MUSC in what has become an increasingly polarized market.
Seven years ago there were nine independent competing private hospitals. Now all but MUSC are part of systems.
"I think people were watching with interest to see what the court would say in South Carolina about a public entity working with a nonpublic entity," said Ken Shull, president of the South Carolina Health Alliance, the state's hospital association. "It obviously will open the door for MUSC to consider options that it couldn't before."
Now one of those options appears to be creating a public authority to oversee the medical university, which would remain public but not be subject to some of the burdens of direct state control.
It all started a little more than three years ago when the MUSC board approved an agreement under which Columbia would lease its three hospitals for $8 million per year, sparking layers of litigation and lawmaking over the legality of the deal.
Within six months of the announcement, the Medical Society of South Carolina, a group of more than 400 physicians that owned rival Roper Hospital, sued to block the deal, alleging it was illegal for a state-sponsored organization to join with a for-profit company. After much activity -- including the passage of state legislation necessary to consummate the deal, court decisions questioning the legality of that legislation and review by the state attorney general's office -- the South Carolina Supreme Court gave it a final stamp of approval in February.
Three weeks later, Columbia and MUSC called it off (March 15, p. 4).
"In the intervening period of time, our strategy changed," said Jeff Prescott, a Columbia spokesman. "We're not necessarily seeking to grow through more acquisitions or more leases or more joint ventures or anything like that."
MUSC's enthusiasm had waned in the intervening years too.
The tide began to turn against the deal when Columbia's internal problems came to a head in July 1997 with criminal indictments of some mid-level executives and resignations of its two top executives. The following month, MUSC indicated that in light of Columbia's woes, it was pursuing other options, although it did not close the door on the lease.
A year later, three of Charleston's private acute-care hospitals came together under one management company, CareAlliance Health Services, after flirting with one another for four years.
The hospitals -- 147-bed Bon Secours-St. Francis Hospital, 398-bed Roper Hospital, and 104-bed Roper Hospital North -- had been rivals for years. In 1994 they became collaborators under an affiliated system called Lowcountry Health System.
Their affiliated system made a bid to partner with MUSC but lost out to Columbia.
CareAlliance was the culmination of yet another stormy relationship nudged along by the Columbia-MUSC deal.
"I think there was a component of reaction to the potential size of the entity that would occur if Columbia and the medical university were to align," said I. Grier Linton, M.D., president of the Medical Society of South Carolina. "Certainly I think it had an impact on the willingness of Bon Secours and Roper to come to terms and recognize their common allegiances, their common goals."
Now that MUSC has officially turned away from Columbia, it is taking a different tack to increase its competitiveness in the market.
State legislation is on the table that would create a public hospital authority to oversee management of MUSC. The bill, introduced by Sen. Ernest Passailaigue (D-Charleston), would keep MUSC as a state organization but exempt it from regulations on procurement, personnel and construction, giving it more flexibility to compete with private hospitals. The bill, sanctioned by a state performance review panel, has yet to be introduced in the House, but MUSC officials hope it will be passed by the end of the legislative session in June.
The state's largest health insurer, Blue Cross and Blue Shield of South Carolina, is reserving judgment on the bill, said spokeswoman Donna Thorne.
"I don't see how it would have any impact on negotiating insurance contracts with insurance agencies, and we are the biggest by far," she said.
Nor have the consolidations in the Charleston market had a major impact on negotiations or contracts between her company and various hospitals, she said.
Putting the medical university under a public authority could save it $10 million annually, according to internal studies by MUSC, said Stephen Jones, executive assistant to the university's president.
For fiscal 1999, MUSC enjoyed net income of $49.9 million on total revenues of $415.8 million, a profit margin of about 12%, according to information provided by Jones.
He declined to speculate on possible affiliations the medical university might pursue beyond the immediate legislative hurdle. But officials at CareAlliance are clearly interested in their rival.
"If MUSC is going to look at a merger, we would welcome any opportunity to sit down together to talk about the continuation of further development and growth of nonprofit healthcare," said Peter Campbell, vice president of mission for CareAlliance.
The medical society, which originally brought the lawsuit challenging the MUSC-Columbia deal, is reserving judgment on the legislation for the moment, Linton said.
"It may be premature to comment on that proposal until more information is made public and can be clearly defined," he said. "Our basic attitude and approach (are that) we want to see the university be a strong medical university, and we hope to find some common ground to achieve that."