Doctors Drop Hospital Bid, Say Rivals Undermined Financing

A physicians’ group said Monday that it has withdrawn its bid to buy control of San Clemente General Hospital because a rival group of staff doctors undermined its efforts to obtain financing for the deal.

Dr. Ron McGee, leader of the thwarted group, alleged Monday that doctors backing a competing plan to buy the hospital deliberately sent patients elsewhere to discourage financing for the acquisition. McGee said patient occupancy dropped from 50 to 17 in about a week’s time.

“They knew if the (patient) census was bad enough, Citicorp wouldn’t fund,” McGee said.

McGee’s group, in partnership with National Healthcare Properties, had proposed buying control of the hospital for $26.4 million. San Clemente General Hospital is owned by American Healthcare Management, a Dallas-based hospital chain that is in reorganizational bankruptcy.

McGee received a letter on Monday from National Healthcare Properties informing him that the firm “will not proceed with the purchase of San Clemente Hospital.”

“The poor economic performance at the hospital, brought on by the political infighting of the various doctor groups and encouraged by the creditors of American Healthcare Management, would make the current transaction a high risk investment. I have told our lenders to stop work on a commitment letter,” National Healthcare Properties President Paul F. Queyrel said in a letter dated Nov. 18.

In October, a U.S. Bankruptcy Court judge in Dallas gave the McGee group tentative approval to go ahead with the acquisition. The plan would have allowed American Healthcare to retain a 50% interest in the hospital’s real estate holdings and future profits while turning over control of hospital operations to the purchasing staff physicians.

Shortly after the judge made his decision and gave the group 6 weeks to confirm financing for the deal, San Clemente General’s patient load plummeted.

Dr. Dava Gerard, president of the rival group that calls itself Physician Associates Committed to Excellence (PACE), denied that it had anything to do with the dip in the hospital census, which has since rebounded to about 40 patients.

“There has been no boycott, organized or unorganized,” Gerard said. She contended that other hospitals in the area also experienced an unexplained census reduction in the same time period.

Gerard said she believes that McGee’s group was unable to obtain financing because it does not represent the majority of the doctors who currently refer patients to San Clemente General, while the PACE group does.

“We have 108 (San Clemente staff) physicians who represent about 87% of the hospital admissions,” she said.

Gerard said PACE will renew its attempt to obtain court approval for its plan to buy the hospital and lease it to Samcor, a Phoenix-based nonprofit hospital chain. American Healthcare Management would relinquish all interest in the hospital.

Gerard said PACE has sweetened its purchase offer and has won the support of American Healthcare Management’s secured creditors, led by Chase Manhattan Bank.

She said the Bankruptcy Court in Dallas has agreed to hold a hearing Monday to consider PACE’s revised offer. She said John Nuveen & Sons Inc., a major health care investment company, has agreed to provide financing for the acquisition.

Gerard refused to discuss the terms of the new offer or the proposed financing. However, David Huff, president of American Healthcare Management, said PACE has increased its all-cash offer from $21 million to $23 million, among other adjustments.

Huff said American Healthcare Management prefers a joint venture arrangement of the kind the McGee group had proposed and will resist an outright sale of San Clemente General.

“It (the hospital) has never been for sale. It has been available for joint venture,” Huff said.