Last month's auction of 225-bed Grant Hospital, which culminated a nearly yearlong effort to sell the troubled Chicago facility, more closely resembled an Agatha Christie climax than a tony Picasso sale at Sotheby's. This little drama took place in a sedate 55th floor conference room at the Chicago office of law firm Sidley Austin Brown & Wood. I had come for a rare event, the forced auction of a functioning hospital not in bankruptcy. I wanted to know how this would work and whom the characters would be, as well as how it would turn out.
"Looks like we're gonna have a barnburner here," said Douglas Lewis, a former HCA and OrNda HealthCorp executive, now the chief executive officer of Nashville-based Sovereign HealthCare, a hospital transaction consulting company hired to help with Grant's sale.
If this was a drama, the theater sure was quiet. Huddled in corners throughout the room or in quiet, carpeted hallways outside, the 40 or so bidders eyed one another suspiciously and whispered, their ears adhered to ever-present cell phones. In one corner sat a group from Chicago's Thorek Hospital and Medical Center, a competitor of Grant's. In another, two companies that had been rivals-one representing a firm called Healthcare Transactions Group and the other representing physician Roberto Diaz-joined their fortunes to submit one bid. A third organization, Denver-based startup Merit Health Systems, hoped to use the auction to acquire its first hospital. Finally, a group called Solomon Healthcare Corp. led by Robert Salazar, owner of a New Jersey hospital and some nursing homes, prepared its bid.
A Cook County, Ill., judge ordered the auction after previous attempted sales of Grant fell through. The hospital's primary creditor, Dexia Credit Local, which owns the mortgage on the hospital, had requested foreclosure, which would have resulted in its probable closing. But citizens and community leaders in the affluent Lincoln Park neighborhood surrounding Grant rallied to keep the hospital open and persuaded County Judge Robert Boharic to put it up for auction. The judge set the terms. The first priority was to be given to owners who would operate the facility as a hospital. If none could be found, the hospital would be sold off part by part to liquidators, realtors and accounts-receivable firms, who watched the proceeding in small groups like beggars at a banquet to which they weren't invited.
The only man in the room not wearing a suit was veteran Chicago hospital valuations expert David Felsenthal of Wellspring Partners, who has been in healthcare for more than 50 years and seemed to know everyone there. Individually and in groups, the bidders approached Felsenthal as if he were a senior statesman or Mafia don.
Robert Baudino, a dignified Des Moines, Iowa-based lawyer representing Grant's owners, not-for-profit Vital Community Health Services, began by reading the names of potential bidders. A hush swept over the room, silent but for the hum of the ventilation. Millions of dollars were at stake. The lives of thousands of employees, doctors, vendors and patients would be affected by the outcome.
In keeping with the Agatha Christie theme, Baudino noted that a few announced bidders didn't show. He pointed out that several of the usual suspects, bidders such as Thorek, had dropped out before the bidding began. Like a poker game that just grew smaller, those remaining squeezed in closer. Baudino announced the joint offer by Diaz and Healthcare Transactions' Gil Slayton and said bidding would begin at $20 million.
Then auctioneer Eugene Crane of the Chicago law firm Dannen, Crane, Heyman & Simon began by announcing, "If there's anybody here seeking medical treatment, you're in the wrong place."
Merit Chief Financial Officer Jonathan Spees opened the bidding at $20 million. Subsequent bids came in increments of $100,000.
Diaz, an elegantly attired man with slicked- back hair, a Palm Beach tan and a bodybuilder's physique, announced his bids in a gruff voice. His group broke ranks with the other two bidders and submitted a bid that included an added $2.5 million for other unsecured creditors. However it didn't increase the overall bid by the required $100,000. This prompted a flurry of highly paid lawyers to rush to the auctioneer's stand like outraged Perry Masons to a judge's bench, arguing over interpretations of the judge's order.
Baudino and Crane tried to restore order with limited success. After another hour of haggling, Merit's final bid of $23.9 million was judged by the auctioneer to be the highest. But the Diaz-Slayton group immediately challenged Crane's decision. Judge Boharic would hear the appeal that same day in Cook County Court.
Eleven lawyers rushed to the judge's courtroom to plead their cases. Almost two hours later Boharic ordered a new auction to take place the next morning with the bidding to begin at Merit's "winning" bid of the previous day. Many left scratching their heads, wondering what they just witnessed and why the auction would continue for another day even though a winning bid had been accepted.
The next day the crowd was smaller. Salazar's group, which was linked by conference call to the auction, was back in the bidding. But at the last minute the high-stakes poker game took a new twist. The Diaz-Slayton consortium, which had challenged the successful Merit bid, was unable to come up with the added cash by the next morning and telephoned its regrets. Salazar and Merit were the only bidders left.
After 15 minutes of bidding, Salazar congratulated Merit on its new acquisition at a final price of $25.2 million. Merit executives, including CEO Richard Pajot and Chief Operating Officer Jay Weinstein, celebrated. "We're happy, but it was an expensive day. I would have preferred it at yesterday's price," Pajot said.
Mark Taylor is legal affairs reporter for Modern Healthcare, based in Chicago.