pstate Carolina Medical Center (Gaffney, South Carolina) evolved from a county-owned facility (Cherokee County Memorial Hospital) sold to National Medical Enterprises (NME) in 1984. Sale conditions included building a new hospital, continued operation of all hospital services, ambulance and emergency room care, guaranteed access to Medicaid and Medicare patients and a 20 year agreement to continue providing indigent care. NME paid the county roughly $1.7 million plus $4.5 million in prepaid payments for a three-year lease in effect while NME built a new 125-bed facility. Shortly before the new hospital opened in 1988, NME sold it to Health Management Associates (HMA) for $16.7 million. HMA owned the new hospital when completed. The old facility reverted to the county which spent $5-6 million to turn it into Peachtree Centre (opened 1992) to house the county=s nursing home and Department of Social Services.

Conversion Process

Motivation. The old Hospital Board believed that Cherokee's sale was preferable to investing a large amount needed to refurbish a deteriorating facility and would also improve the hospital's prospects for survival by removing politics from the hospital's management.

Since the mid-1970's, the old hospital had become a political headache constantly criticized in the papers. It had become a source of patronage with excess staff, subject to micromanagement by the county council. The well-connected could arrange not to be billed. The hospital did not have a local reputation for good quality, and, instead, many patients drove 20-30 minutes for care. Though managed under contract by HCA for three years starting in 1979, the hospital still was a chronic source of controversy.

There are conflicting accounts whether the old facility needed renovations. Some viewed the county incapable of refurbishing and/or effectively managing the hospital, hence a conversion offered the best hope for the hospital's survival. Public Oversight. The conversion was widely publicized in advance, but there were split opinions on whether it was a good idea. By the time of the actual sale, the issue had been under discussion for literally years, both in the papers and through word-of-mouth rumors typical in a small community. Although no formal public hearings were held, the County Council had several open discussions of the sale during their regular meetings.

The Attorney General had no involvement in the sale. The conversion posed no antitrust issues, and state law does not regulate public hospital sales. The State Ethics Commission reprimanded five county councilmen for receiving compensation from another bidder (not NME).

Fair Value. Assets of the hospital appear to have been sold at a reasonable price. HCA offered in 1979 to buy the hospital for $1 million. Several hospital board members favored this, but others insisted on getting bids. An attorney and accountant helped the board evaluate the 5-6 bids received, resulting in a much higher price: the cash price alone amounted to more than nine times earnings before interest, taxes, depreciation and amortization.

Community Control

The community has permanently lost ownership of the hospital, but retains some advisory control through community representation on the hospital board. This loss of control does not appear to be of general concern as HMA relies on board input in determining service needs and monitoring quality and has not taken controversial actions that could have upset the community. Some believe this board does not have much influence over hospital policy.