July, 1998
This article was written by the Consumers Union Southwest Regional Office.
In May 1996, Universal Health Services, a Delaware for-profit corporation, purchased Northwest Texas Hospital, a 360- bed public medical facility in Amarillo financed by local taxpayers and governed by the Amarillo Hospital District. Although the common law principles designed to protect charitable assets do not apply to a public hospital, the issues for the taxpayers who own a public facility are the same: the public has a stake in the value of the assets and their continued use serving the community's health care needs.
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Although much negotiation remained behind closed doors, the Hospital District sought multiple bidders, and Amarillo residents had access to more information and played a significant role in the final outcome. In particular, citizen pressure resulted in agreements that the funds from the sale would continue to support indigent care and the now for-profit hospital would continue to provide it. |
The Hospital District's primary purpose was to "own and operate a hospital or hospital system for indigent and needy persons within the District. In this regard, the Hospital provides care to patients who meet certain criteria under its charity care policies without charge or at amounts significantly less than its established rates."1
However, the Hospital District's Board of Managers decided that it was in Amarillo's best interest to sell or lease the facility, citing the hospital's poor financial condition and the projections of reduced federal "disproportionate share" funding (federal funds available to public hospitals that care for a "disproportionate share" of the indigent population). Therefore, the board initiated a competitive bidding process and entertained several bids from investor-owned companies to lease or directly purchase the hospital.2
The District board agreed to terms with Universal Health Services, Inc. (UHS) in February, 1996, but after public outcry, the two sides submitted the agreement to a public referendum in May, 1996. Amarillo voters approved the sale by a margin of 10,804 to 7,025. 3
On May 7, 1996, the District, with approval of the City Commission of the City of Amarillo, finalized the hospital sale to Universal Health Services, Inc. (UHS), for approximately $121 million.4 UHS also agreed for a seven year period following the sale to anually pay the District 15% of its earnings before depreciation, interest and taxes in excess of $24 million, and agreed to continue providing indigent hospital care.5 Upon completion of the sale, City and County officials eliminated the ad valorem tax that funded the District.6
Partly because it was a public facility, the sale of Northwest Texas Hospital gives us a glimpse of the potential benefits of increased public participation in a hospital conversion. Although much negotiation remained behind closed doors, the Hospital District sought multiple bidders for the sale, and Amarillo residents had access to more information about the sale and played a significant role in the final outcome of the conversion. In particular, citizen pressure resulted in an agreement designed to assure that the funds from the sale would continue to support indigent care and that the now for-profit hospital would serve indigent patients.
Specifically, the District board entertained at least three other offers in addition to UHS to manage or purchase the hospital. After the City Commission approved the deal, the District Board released the other offers. Health Management Associates offered $57 million, Columbia/HCA offered $34.5 million for a 99- year lease with an option to purchase, and OrNda Healthcorp offered $9 million per year to lease the facility.7 Initiating contact with multiple bidders enabled the Hospital District to secure a better deal for the community, although there was no official valuation of the hospital's assets until the sale was finalized. The appraiser, hired jointly by the Amarillo Hospital District and Universal, determined the fair market value to be $120 million and the taxable property value to be $85 million.
More importantly, the citizens of Amarillo had a hand in deciding the fate of the hospital that was supported by their tax dollars for many years. With prodding from the community, the Hospital District Board convinced Universal to agree to allow the public to vote on the terms of the agreement in a nonbinding referendum. Between February and May, 1996, proponents and opponents of the sale sponsored a number of public meetings to educate the public about the terms of the sale and the potential impact on the community. "The first meetings were polite enough, but the gatherings grew steadily more raucous--to the point where personal attacks and yelling matches weren't uncommon." 8
According to Susan Sherry, formerly of the consumer group Community Catalyst, "in virtually every case when the public gets involved [in a hospital acquisition] you get a better deal."9 This was certainly true during the sale of Northwest Texas Hospital. The public hearings and rising criticism of the agreement caused the District and UHS to amend the sales contract and include additional indigent care provisions.10
The District and Universal negotiated a separate indigent care agreement under which the two will share the spending burden for this care. Universal agreed to provide hospital and clinic care for indigent patients at no charge in return for annual payments from the Amarillo Hospital District that will pay physicians, dentists and other health-care professionals.11 Under the 25-year agreement, the District will pay Universal $8 million a year for the first four years and $6 million a year for the succeeding 21 years&emdash;to be paid out of a trust fund set up from the purchase price.12 Universal agreed to share funding of the public health budget for five years with the Amarillo Bi-City-County Health District.13 The now-private hospital would also be subject to property taxes, although Universal immediately appealed its first $85 million property tax appraisal.
While some public concern about Universal's delivery of indigent care remained, the voters approved the sale to UHS by a significant margin with reasonable turnout (22 percent, which is high for an off-year election, according to news reports).14 The city council formally approved the transaction shortly thereafter.15
