Reprinted from the February 3, 1997 issue of MODERN HEALTHCARE
Copyright, Crain Communications Inc., 740 Rush, Chicago, IL 60611 All rights reserved.
By Bruce Japsen
Texas weighs action on Baylor
State’s attorney general to review any deal for system; Tenet waits in wings

Baylor Health Care SystemTexas’ attorney general is poised to get involved in the merger or sale of Dallas-based Baylor Health Care System – a deal valued at more than $1 billion.

“We haven’t been contacted yet, but it appears serious enough that it looks like something’s going to happen, and we will be getting involved,” said John Vinson, assistant attorney general in the charitable trust section. “This will be a very big case for Texas, and there will be a very detailed document request” made by the state.

Consultant Josh Nemzoff, hired by the Baylor University Board of Regents, is studying the deal. Nemzoff, based in Nashville, Tenn., specializes in helping for-profit buyers and not-for-profit sellers meet.

Baylor consists of eight owned or leased hospitals and five affiliated hospitals.

The university regents began considering a merger or sale after the healthcare system board told them last fall that the system’s financial viability was threatened in the increasingly competitive Dallas market.

The system’s board opposes relinquishing control to another organization, particularly an investor-owned hospital chain (Jan. 27, p.3).

Whether the system is sold to a chair or merged with a not-for-profit, the university wants its mission to continue to be “driven by charitable, educational and research purposes,” Nemzoff said.

In a research analysis of a possible value of the system, Nemzoff said he consulted with Santa Barbara, Calif-based Tenet Healthcare Corp., but Tenet hasn’t made an offer.

He said Tenet executives told him the system was worth as much as $1.2 billion, and simply merging with another non-for-profit would amount to a giveaway by the university.

The system board acknowledged its desire for an affiliation with another not-for-profit, but said a sale to an investor-owned chain is out of the question. The system’s board and university regents must jointly approve any merger or sale.

Any state investigation would address the fairness of the system’s value and look at charity care and mission issues, Vinson said.

A probe also would delve into a 76-year-old relationship between the regents and the healthcare system, which appears to have equal power when it comes to deciding whether the system can be sold or merged, he said.

Meanwhile, investor-owned chains are waiting in the wings.

“Once the healthcare system board and the university resolve which road they want to go down, and if they choose the for-profit option, we would be very interested,” said Tenet spokeswoman Christie Sulzbach.