CALIFORNIA: ATTORNEY GENERAL OPPOSES COLUMBIA/HCA DEAL
State Attorney General Dan Lungren (R) moved Friday "to haltThis is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.
Sharp HealthCare from selling controlling interest in its
nonprofit hospitals to Columbia/HCA Healthcare Corp., calling the
deal fundamentally flawed." SAN DIEGO UNION-TRIBUNE reports that
Lungren informed Sharp officials in a letter that if they did not
stop the sale of a half-interest in their hospitals to
Columbia/HCA, he "would sue to block the deal." Lungren said in
a statement, "It is critical that taxpayers of San Diego County,
who have supported Sharp and its affiliated entities with tax-
exempt status, be protected against a for-profit transaction,
which threatens the value of the charity and the charitable
services provided by the community. It is my view that the
transactions, as contemplated, would breach the trust under which
Sharp operates." The Sharp and Columbia/HCA deal is the first of
its kind in California. Sharp officials were notified through
the letter that James Schwartz, deputy state attorney general,
"is opening a civil investigation into the dealings" between
Sharp's board and Columbia/HCA. UNION-TRIBUNE reports that after
receiving the letter, "Sharp officials effectively put the entire
deal on hold."
BAD DEAL: Schwartz noted that two other for-profit hospital
chains -- Santa Barbara-based Tenet Healthcare Corp. and
Nashville, TN-based OrNda Healthcorp. -- submitted higher bids
than Columbia/HCA. Columbia/HCA offered $195 million; Tenet
offered $304 million; and OrNda offered $395 million. Schwartz
added that the Sharp hospitals were grossly undervalued. He
said, "Should this deal close in the proposed form, we will seek
to hold the Sharp directors who voted to approve the transaction
personally liable for" the $100 million to $200 million the
"charity's public beneficiaries" stand to lose. Schwartz also
charged that the San Diego Hospital Association, Sharp's parent
board, and Sharp's individual hospital boards, "voted to approve
the sale 'without knowledge of, or resolution of, a number of key
matters' that could have a significant financial impact on
Sharp's nonprofit organization."
SHARP REPLY: Kearny Mesa-based Sharp, the largest hospital
system in the region and provider of 30% of the area's health
care, issued a statement saying, "We disagree with the
assessments and characterizations of the attorney general. ...
We look forward to meeting with the attorney general to clarify
and resolve these issues." However, Sharp attorney John Walker
"wrote a scathing" response to Schwartz, "calling his
correspondence 'the most unfair and wrongheaded' he had seen from
a government official." Columbia/HCA officials said that they
remain "committed to working out the transaction with Sharp,"
adding that they believe the deal will have "many positive
results for the San Diego community" (Dalton, 11/9).
SHREWD DECISION: Sanford C. Bernstein & Co.'s Kenneth
Abramowitz said that "Sharp was right to take less money to deal
with Columbia because Sharp was under financial pressure from
California's powerful managed care companies." He said,
"Columbia is a big gorilla and Tenet is a little gorilla. In the
competitive environment you want to sell out to the strongest
company you can, with the highest chance of doing well"
(Freudenheim, NEW YORK TIMES, 11/9).