$825 Million for a Junk-Rated Hospital: The OU Health Transaction
Boomer Sooner! The economists predicted exactly what happened next. HCA wanted out. SSM Health walked away after due diligence.
Two buyers looked at OU Health’s predecessor hospitals.
HCA owned them.
HCA wanted out.
SSM Health, a nonprofit system, spent six months in due diligence. They walked away.
No explanation.
No counter-offer.
They just left.
The State of Oklahoma looked at the same assets.
The same books. The same market.
Oklahoma wrote an $825 million check.
IN TODAY’S ARTICLE:
Is it appropriate for State funded Universities to acquire private businesses?
Why HCA wanted out, and SSM Health walked away after due diligence
The $75 million price increase that happened between court approval and closing
What five economists would have predicted about converting a taxpaying asset to a tax-consuming liability
The national pattern Oklahoma joined, not created
Glossary at the bottom of today’s article.
THE SIGNAL
October 2016.
HCA Healthcare announces it will sell its Oklahoma City hospitals. OU Medical Center. Children’s Hospital. Presbyterian Tower.
HCA is the largest for-profit hospital operator in America. They don’t sell assets because they’re feeling generous. They sell when the math stops working.
The announcement was the signal.
Something about this market, these facilities, and this operating environment led HCA to decide: we’re out.
THE CHECK
The timeline tells the story.
October 2016: HCA announces sale. Asking price: $750 million.
March 2017: SSM Health walks away after six months of due diligence.
A national nonprofit health system with resources to complete the transaction spent half a year reviewing the books. They saw something. They left.
November 2017: University Hospitals Authority files a petition with the Oklahoma Supreme Court. Proposed price: $750 million.
December 2017: Oklahoma Supreme Court approves the $750 million transaction.
February 2018: Deal closes.
Price: $825 million.
Somewhere between court approval at $750 million and closing at $825 million, the price increased by $75 million.
No amended petition. No new court review. No public explanation for why the state paid 10% more than the court-approved price.
The question nobody asked: if SSM Health walked away at $750 million, why did Oklahoma pay $825 million?
THE QUESTION THE ECONOMISTS WOULD ASK
Five economists walked into a regulatory hearing.
Not literally. But if Milton Friedman, F.A. Hayek, Thomas Sowell, Ayn Rand, and Niall Ferguson were asked to evaluate the OU Health transaction, they would have asked the same question:
What happens when you convert a taxpaying entity into a tax-consuming entity?
HCA paid taxes.
Federal income tax.
State income tax.
Property tax.
The hospitals generated revenue for Oklahoma, not just services.
The moment the State of Oklahoma acquired those assets, the tax base disappeared.
THE QUESTION NOBODY ASKED
Before the transaction, the hospitals were a source of tax revenue.
Following the transaction, the hospitals became a source of tax revenue.
The buildings didn’t change.
The beds didn’t change.
The patients didn’t change.
What changed: who pays and who gets paid.
Oklahoma got... what exactly?
The legislators are asking questions.
The credit rating is junk. The bailouts are starting.
Paid subscribers knew this was coming.
They read the investigation before the appropriations committee did.
The next state drops soon. Be inside the circle when it does.
