Natchez Regional officials using ‘stalking horse’ bidding process for hospital sale

Published 12:13 am Thursday, August 29, 2013

NATCHEZ — Natchez Regional Medical Center will be sold through a process that the hospital’s attorney said would guarantee a reasonable base bid and the ultimate sale of the county-owned hospital.

The Mississippi Attorney General’s office issued an opinion Tuesday stating that Adams County was within its right to use a “stalking horse” bidding process when it puts NRMC up for sale.

In a stalking horse process, an initial bidder steps forward and negotiates with the sellers a minimum price and any other requirements for the sale. When bidding for the hospital opens, the stalking horse’s bid will be considered the base below which no one else may bid.

If no one outbids the stalking horse, the hospital is automatically sold to that bidder, NRMC board attorney Walter Brown said.

“You are guaranteed a sale the day you put a sales resolution proposal in the paper,” he said.

The hospital is negotiating with several potential stalking horse candidates, Brown said, though he declined to name who those candidates might be.

“When that negotiation process is completed and (the bidders) have signed an asset purchase agreement, thus binding themselves to those minimum terms and posting a security for the purchase, (the county supervisors’ attorney) will take it to the supervisors, and we will present to them a request for proposals that will specify who that bidder is and what that minimum bid is and any other pertinent information,” Brown said.

In some instances, a stalking horse bidder can be assured of a breakup fee, a fee negotiated if a seller decides to take a more attractive offer.

Based on the recommendation of the hospital’s trustees, the Adams County Board of Supervisors limited the stalking horse negotiations to non-profit hospital systems in NRMC’s out-migration area, systems within 150-miles that frequently treat people from the Miss-Lou or to which local doctors refer their patients.

“They are geographically in this area, so they have a stake in how this turns out,” Brown said.

Based on the supervisors’ limitations, possible stalking horse bidders could include Oschner Health System, Baptist Health Systems and the CHRISTUS Health System.

Adams County Board of Supervisors President Darryl Grennell said that decision was based in part because non-profits are more concerned about healthcare.

“The for-profits are looking at making big money, but the non-profits are looking at providing good health care for the community,” he said.

The county supervisors’ attorney, Scott Slover, said that after the stalking horse negotiations are complete and the bidding starts, for-profit systems will be allowed to bid.

Brown said both the current parent company of Natchez Community Hospital, Health Management Associates and the company looking to acquire HMA, Community Health Systems, will be allowed and encouraged to bid.

“With the stalking horse, you are looking for someone who is financially capable of owning and operating the hospital, an entity has much of our business at this point as reflected by outmigration studies,” Brown said.

“Once we have a stalking horse, we will send out letters to approximately 90 other hospital systems that meet the financial requirements — which are not onerous but which are enough to ensure the hospital system is carrying on its mission.”

In addition to a minimum price, the stalking horse bid will require that the buyer recruit a certain as-yet-undetermined number of doctors to the area, Brown said.

However, the sale process will also have a provision that a bidder who promises to build a new hospital facility in addition to the minimum price negotiated with the stalking horse will prevail, Brown said.

But before any of this can be finalized, the county still has to have a public hearing in which to adopt the sale resolution.

“It all looks like this is the direction we should go and be driving towards, but nothing is irreversible at this point,” he said.

The county board decided to sell the hospital earlier this summer at the recommendation of the hospitals trustees, who said concerns about a changing medical landscape made them believe it was in the best interest of the area’s health care to sell the hospital to a larger system.