PACE Physician Group to Buy San Clemente General : Hospital Purchase Gets Court’s Tentative OK

A group that once was a dark horse in the competition among local physicians to buy San Clemente General Hospital said Monday that it has received tentative approval from a bankruptcy court to buy the facility for $23 million.

The group, called PACE Inc. (Physician Associates Committed to Excellence), said a few issues must be resolved before a definitive agreement can be signed with American Healthcare Management, a Dallas-based hospital chain in bankruptcy.

The bankruptcy court last Thursday approved the transaction contingent on PACE and American Healthcare Management obtaining an extension on a state deadline to upgrade the hospital emergency room, deciding whether to renew its contract with a radiology group, and coming to terms on the wording of a definitive sales agreement.

But PACE officials said Monday that these issues had been mostly resolved. They were optimistic that a definitive agreement would be reached soon and that the sale would be completed by April 30.

Timothy Domain, American Healthcare Management’s director of corporate finance, was more cautious.

“Obviously,” he said, completion of a sale “is much closer than it was a month ago.” But he added: “I have seen deals break apart at the last moment. They still have to come up with the financing.”

A definitive agreement must be signed before a loan can be sought to obtain financing for the proposed PACE acquisition, according to David Atchison of John Nuveen & Co. in Chicago, PACE’s investment banker.

PACE proposes that a limited partnership of staff physicians at San Clemente General Hospital buy the 116-bed facility and then lease it to a management subsidiary of SamCor Inc., a nonprofit hospital chain based in Phoenix. American Healthcare Management would have no ownership or operating role.

SamCor has said it plans to put in a new management team at the hospital but to retain the rest of the staff.

In arranging the acquisition, PACE has recruited staff physicians at San Clemente General Hospital to a limited partnership that is expected to supply between $3 million and $5 million toward the purchase price. Dr. Dava F. Gerard, president of PACE, said that so far 58 staff physicians have joined, each investing a minimum of $50,000.

The remainder of the $23-million cash price of the hospital’s fixed assets will be raised by arranging a loan with institutional investors, Atchison said.

In addition, Green said SamCor will pay an amount not yet determined to American Health Care Management to acquire the hospital’s cash on hand and receivables.

PACE is not the first group to announce having come close to purchasing San Clemente General. In October, a physicians’ group led by Dr. Ron McGee won tentative court approval to proceed with the purchase of the hospital on condition it could complete financing.

However, McGee’s group withdrew in late November. McGee complained at the time that physicians in the PACE group had undermined the group’s attempts to obtain financing by deliberately sending their patients to other hospitals. When the patient occupancy dropped from 50 to 17 in about a week’s time, McGee said, the group’s prospective lender, Citicorp, became nervous.

PACE President Gerard, however, denied that PACE had anything to do with the dip in the hospital census, which later rebounded.