Physician entrepreneur Prem Reddys buying spree of troubled not-for-profit hospitals in Southern California stumbled last week when the California attorney general denied the proposed $55 million sale of 224-bed Anaheim (Calif.) Memorial Medical Center.
Anaheim would have been Victorville, Calif.-based Prime Healthcare Services ninth hospital, coming on the heels of its successful but highly contentious acquisition of 301-bed Paradise Valley Hospital on March 1 after an overwrought public process (March 5, p. 6).
Chief Deputy Attorney General James Humes said in a July 11 letter that information received since the proposed sale was announced on Feb. 28 revealed that some potential alternative bidders indicated a tentative willingness to pay substantially more for Anaheim than was offered by Prime. The reasons why the competing bids failed are uncertain or disputed, he said, and evidence suggests that potential bidders may have been treated differently and did not have equal access to relevant information. Humes said he would take no position as to whether we would consent to a sale under similar terms if it were to emerge from a bidding process that we could determine was open, fair and transparent.
Reddy, a cardiologist and chairman of privately held Prime, said he was surprised by the decision. I have to respect whatever the attorney general decides, he said. Im hoping Memorial will discuss it with the attorney generals office to see if there were any problems with the bidding process, and the decision is made sooner rather than later, because all the executives and a lot of employees have already made decisions to leave the hospital.
Barry Arbuckle, president and chief executive officer of six-hospital Memorial Health Services, owner of Anaheim, took it one step further than Reddy, saying he was also shocked by the decision, insisting in a written statement that it was an open and transparent seven-month process. He noted that the public bidding process began after two years of internal review.
The deal was facilitated by global banking firm Citigroup.
More than 30 parties expressed interest in the Anaheim hospital, but eight healthcare organizations were considered after eliminating real estate developers and others who did not intend to continue it as a hospital, Arbuckle said. The eight were narrowed to three serious bidders based on their hospital operating experience, financial viability and bids. Primes bid was the highest, including a minimum capital commitment of $25 million.
Primes bid resulted in the highest commitment to the Anaheim community and the lowest proceed directed to Memorial, Arbuckle said in the statement. Prime was also the entity that best combined both hospital operating experience and the greatest financial viability.
Memorial is still exploring its options, Arbuckle said through a spokeswoman.