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Columbia-Sharp Hospital Deal Questioned

Health care: Attorney general to investigate why higher offers were rejected.

November 09, 1996|DAVID R. OLMOS | TIMES STAFF WRITER

Atty. Gen. Dan Lungren on Friday vowed to block a proposed joint venture between Columbia/HCA Healthcare Corp. and San Diego's highly regarded Sharp hospital system and said he will investigate why two more lucrative offers were turned down at a potential cost of more than $200 million in charitable funds to Californians.

Lungren charged that Sharp HealthCare was not getting the full value for four hospitals that it agreed in December to jointly operate with Columbia/HCA in a 50-50 venture. He said he will seek court action to halt the deal unless Sharp and Columbia sign a stand-still agreement.

The attorney general, in a letter sent Friday to Sharp officials, raised the question of whether "there was bias in the process to favor one party over others" and asserted that Sharp directors were denied "essential information necessary to the proper review."

In an angrily worded response, Sharp lawyer John F. Walker Jr. of Los Angeles said Lungren was "dead wrong" in his allegations and accused him of "reckless government behavior" and "half-informed personal attacks on the integrity of individuals."

"You indicate that somehow Columbia was selected out of some corrupt motivation," Walker wrote. "I challenge you to back this up."

Lungren said the $202 million that Columbia/HCA would pay Sharp for its operations is about $109 million less than an offer from Tenet Healthcare, a Santa Barbara hospital chain. And he said it is more than $200 million less than the amount "apparently offered" by Ornda Healthcorp., another Nashville-based hospital concern.

Lungren accused Sharp's directors of "a serious breach of trust which will cost the charity's public beneficiaries between $100 million and $200 million." He warned that if the public charity funds were not increased, the state would hold any Sharp director who voted for the deal "personally liable" for the shortfall.

But attorney Walker said Sharp was not obligated to accept the highest bid for its hospitals and that the board's view was "that the quality of the buyer and quality of the hospital operation after the transaction was at least relevant, if not critical, to this decision."

Lungren's office began a review of the Sharp/Columbia deal last December under a state law that requires any organization whose ownership switches from not-for-profit to for-profit status to compensate the public for the tax-exempt status it enjoyed as its business grew. The law is most commonly satisfied by the not-for-profit organization forming a charitable foundation based on the market value of its assets.

Columbia issued a statement in response to Lungren's letter, saying it "remains committed" to the deal and "will do our part to answer questions raised" by the state.

The state's action marks the latest battleground in a debate over the sale of not-for-profit hospitals to large for-profit hospital chains. For Nashville-based Columbia/HCA, it is more bad news for a firm that has been plagued by controversy as it has built the world's largest hospital chain in the past few years.

Lungren's action follows similar moves this year by the attorneys general of Michigan and Ohio, who have raised legal objections to the sale of not-for-profit health-care firms to Columbia/HCA.

In Ohio, Columbia's proposed $299.5 million acquisition of Ohio Blue Cross and Blue Shield has been challenged by Ohio's attorney as being less than full value.

In September, Ohio Atty. Gen. Betty Montgomery objected to $19 million in "golden parachutes" that Columbia had agreed to pay to Ohio Blue Cross executives.

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