South Fulton Medical Center in East Point, Ga., should be exempted from a Georgia law requiring state supervision over the sale of not-for-profit hospitals, according to lawyers for the facility in a petition to U.S. Bankruptcy Court.
That's because the law would add a delay of at least 90 days and interfere with the court's ability to ensure a sale that would benefit the not-for-profit hospital's creditors, said South Fulton's lawyer, Jack Schroder of Alston & Bird in Atlanta. Compliance with the statute could result in a devaluation of hospital assets or even the hospital's closure, said Schroder, who is also general counsel for the Georgia Hospital Association.
The expense of the 3-year-old law and the delay it causes may be scaring off potential buyers for small, not-for-profit hospitals in the state--especially rural ones, according to law opponents.
South Fulton wants to sell to the highest bidder in a court-supervised auction as soon as the judge sets a date.
To facilitate a sale, 369-bed South Fulton filed for Chapter 11 relief on April 26 in bankruptcy court in Atlanta (May 1, p. 4). Daryl Robinson, a spokesman for the Georgia attorney general's office, said the court will have to decide if bankruptcy laws pre-empt state law.
At issue is Georgia's hospital-acquisition law, enacted in October 1997, which says a not-for-profit corporation's sale of a hospital must be reviewed by the attorney general's office to determine the sale's impact on the public interest. The attorney general also must hold a public hearing in the hospital's county to ensure that sale proceeds are used for charitable healthcare purposes.
Only two hospitals have gone through the process and had their deals approved; one deal was later struck down.
"This is an expensive process," said Loy Howard, president and chief executive officer of two-hospital, not-for-profit Tanner Health System, based in Carrollton, Ga.
Tanner Health was the first to test the law in June 1998 when it proposed a 40-year lease agreement to acquire 39-bed Higgins General Hospital in Bremen, Ga. (Sept. 7, 1998, p. 42).
Howard said the $50,000 filing fee and the legal costs required to fulfill the mandate may put off potential saviors of rural hospitals.
The Higgins deal was approved by the attorney general in September 1998, but it was immediately challenged by Carroll County Commissioner Amos Sparks and eventually struck down by the Georgia Court of Appeals.
Higgins and Tanner have started negotiations all over again. Terms have not been disclosed, and the parties will again seek the attorney general's approval of the lease agreement.
The second approved transaction came in December 1999, allowing 143-bed Oconee Regional Medical Center in Milledgeville, Ga., to sign a long-term operating lease agreement with 72-bed Jasper Memorial Hospital in nearby Monticello, Ga.
Two other hospitals have sought exemptions based on the fact that they had closed before a sale or a lease was proposed. The attorney general determined that 21-bed Rabun County Memorial Hospital could purchase 49-bed Ridgecrest Hospital, which closed last August. Both hospitals are in Clayton, Ga. A group of local doctors led by George King, however, is challenging that decision in the Georgia Court of Appeals.
The attorney general said that 40-bed Tattnall Memorial Hospital in Reidsville, Ga., which closed in April, is exempt from the law (April 10, p. 36). The attorney general approved the planned $3.5 million sale of the facility to First Choice Healthcare, Peachtree City, Ga., which was formed to acquire Tattnall.