Lawrence County Health Care Authority is the governmental healthcare administrator in Lawrence County, Alabama. The Authority is located west of Decatur, Alabama.
Lawrence County Healthcare Authority was currently leasing its facility to Baptist of Birmingham. However, with just over a year to go on the current lease, it was apparent to the Authority that Baptist of Birmingham did not intend to renew the lease due to its negative cash flow prospects. The Authority’s 40-year-old hospital that was originally built with Hill-Burton funds, although well-maintained, had specific equipment and building system needs (including a new computer system) in addition to the need for a new operator. To add to the trouble, the community had not attracted a new physician in seven years. The board of the Authority had cash on hand, but did not want to keep the risk associated with hiring a management company.
Given the board’s aversion to the risk of hiring a management company, we decided to explore the possibility of selling the hospital. We developed a Confidential Information Memorandum (CIM) and Teaser, and identified 18 likely buyers. After sending the Teaser to these 18 buyers, we received interest in 8 CIMs. From these 8 we received 6 Indications of Interest, at which point we selected four to perform management interviews.
We negotiated with the four finalists, and the Authority was able to choose the highest of four quality lease options. The buyer that the hospital chose proposed a five year lease with an obligation to build a new facility on land leased from the Authority, so that the Authority could control the future use of the facility and the provision of charity care. Failure to build the new facility would trigger a prepaid 20 year extension of the lease on the existing facility. We also assisted the Authority in terminating its lease with Baptist Birmingham, resulting in a settlement of Baptist’s capital obligations and payment of funds held by Baptist. Upon assuming ownership, the buyer updated the current facility, planned a new facility, and obtained a Certificate of Need, which attracted new physicians to the area. However, after three years the buyer defaulted on its requirement to build the new hospital. As a result, the Authority received as a settlement new computer and other equipment, the retention of five years prepayment on the lease, cash settlement for expenses, and escrow for the liabilities.