The race to buy 132-bed Logan (W.Va.) General Hospital out of bankruptcy isn't over, and the front-runner's lead has been trimmed to $3 million from $4 million.
Health Management Associates, Naples, Fla., is still at the head of the for-profit pack pursuing not-for-profit Logan General, which has been in bankruptcy protection since October 1998. But at a hearing this week, U.S. Bankruptcy Court Judge Ronald Pearson in Charleston made it easier for two other interested companies, Community Health Systems and LifePoint Hospitals, both based in Brentwood, Tenn., to beat HMA's $72.1 million bid.
HMA and Logan Medical Foundation, which owns the hospital, announced their proposed deal in August, without releasing the terms at the time. HMA and the foundation agreed to a $2 million breakup fee -- to be paid to HMA if another bidder wins during a bankruptcy auction -- and a $2 million "overbid" amount, court records filed last month show. In other words, under the bidding terms proposed by HMA and the foundation, another suitor would have to bid at least $4 million more than HMA, or $76.1 million.
Pearson cut the overbid amount in half, to $1 million, but denied a request by LifePoint to also trim the breakup fee, said John Tishler, a lawyer representing LifePoint. Community and LifePoint, both of which the foundation board rejected in the earlier round of bidding, now may bid as low as $75.1 million and win the hospital, Tishler said.
This is not the first time investor-owned chains have vied for Logan General. In June 1999, Community, HMA and Province Healthcare Co., Brentwood, all expressed interest until a plan surfaced for Logan General to join the former Genesis Healthcare system. The three West Virginia hospitals that formed Genesis split up before Logan General could join the former system, however, putting Logan General back in play.
Pearson is expected to approve an order setting the revised sales terms by early next week. The sale and potential bankruptcy auction should come 20 to 30 days after the order, said Tishler, a lawyer with Waller Lansden Dortch & Davis, Nashville.
LifePoint has not made any public statements about whether it will bid for the hospital given Pearson's ruling, Tishler said.
Another interested party is a consortium of consumer groups, which has friend-of-the-court status in the case. The consortium includes a local not-for-profit organization and two national consumer advocates, Consumers Union and Community Catalyst. Renee Markus Hodin, a lawyer for Community Catalyst, said the consortium is mostly concerned with preserving the services offered by Logan General. But, Markus Hodin added, if the hospital fetches a higher price, she hopes that means more money for the not-for-profit healthcare foundation that will be endowed with some of the sale proceeds.
Logan Medical Foundation was plagued by fraudulent business deals, including a failed shopping mall development. The foundation listed $65 million in debts when it filed for bankruptcy. In April 2001, a federal judge sentenced C. David Morrison, the hospital's former administrator, to eight years and one month in prison for diverting hospital funds to the mall and other schemes. The 4th U.S. Circuit Court of Appeals, Richmond, Va., upheld Morrison's conviction in February, but he remains free on bond pending further appeals.