Frequently Asked Questions (FAQ) Regarding Sale Of Garden City Hospital To Prime

This page answers frequently asked questions regarding the Attorney General's review of the sale of Garden City Hospital to Prime Healthcare Services. Garden City Hospital and Prime signed a definitive agreement in January 2014 and, subject to the Attorney General’s review, expect to close the transaction in the next 4 to 6 months.

1. Where can I find documents related to this transaction?

To promote transparency and inform the public, documents are available on the Attorney General website.

2. Why is Garden City Hospital selling to Prime?

Garden City Hospital has represented to the Attorney General that it is selling to pay off financial liabilities, to improve quality of care, and to preserve and expand services. As part of the review, the Attorney General will review these representations.

3. How was a buyer chosen? Why Prime?

The Attorney General will review these questions to ensure a fair process and to verify that Garden City Hospital receives fair market value for its charitable assets.

4. Who is Prime?

Prime Healthcare Services is a privately-owned company from California. It operates 25 hospitals in 6 different states; this would be its first hospital in Michigan. More information on Prime is available at http://www.primehealthcare.com.

5. What happens to the proceeds from the sale?

Michigan law requires that charitable assets be used for charitable purposes. It is expected that the proceeds from the sale will go to paying off the hospital's debts. The Attorney General will review to ensure that the hospital receives fair market value for its assets and that any proceeds are appropriately distributed to charity.

6. What happens to Garden City Hospital after the sale?

Garden City Hospital will continue to serve the medical needs of the local community, albeit with a new owner—Prime Healthcare Services. Garden City Hospital has represented that, under Prime's ownership, it will maintain an acute care hospital with an emergency room for at least five years and that hospital employees will be offered substantially similar contracts to their current contracts. As part of his review, the Attorney General will consider these representations.

7. The parties entered a Letter of Intent in October. What is a Letter of Intent?

A Letter of Intent, or LOI, is a tentative agreement between parties to cooperate toward certain ends. In general, the parties agree to work in good faith towards completing a sale. Garden City Hospital and Prime reached a definitive agreement in January 2014.

8. Why is the Department of Attorney General involved?       

In general, the Attorney General protects charitable assets in Michigan under broad common law and statutory authority. This authority extends over the merger or sale of charitable nonprofit corporations, which includes most of Michigan's hospitals. Primarily, the Attorney General reviews these transactions to protect the charitable assets and to ensure that they are not diverted for private benefit. The Attorney General also protects restricted charitable assets, i.e., those assets that were donated for a specific purpose, to prevent these assets from being misused. For a guideline of the Attorney General's review process, see here.

9. How is the Attorney General involved in this specific transaction?

More specifically, the Attorney General is reviewing this transaction because the parties have conditioned the sale on receiving the Attorney General's consent or lack of objection. In other words, the parties recognize the Attorney General's authority in this area, are cooperating with the Attorney General's review process, and recognize that his objection would stop the sale.

10. What does the Attorney General review?

The Attorney General's Review Process provides guidelines for the issues the Attorney General considers, but here are some of the main areas:

• Valuation – What is the fair market value of the charitable assets? Is the buyer receiving sufficient consideration, i.e., money or value, in exchange for the assets being sold? In some instances, the Attorney General asks the parties to fund independent experts to assist in answering these questions.
• Financial evaluation of buyer – Does the buyer have the financial resources to meet its promises? For example, if the buyer proposes capital improvements or expansion of services, can it meet those promises?
• Process review – What process and events led the seller to propose a sale? Was the process fair? Were there conflicts of interests for board members and/or management? Did the seller diligently exercise its duties of loyalty and care to the organization?
• Restricted charitable assets – Do any restricted charitable assets exist, i.e., assets donated for a specific purpose? Will these assets be adequately protected during the sale?
• Post-transaction enforcement – How will the buyer be held to its promises? In recent transactions, the Attorney General has required the buyer to sign a corporate monitoring agreement whereby an independent monitor reviews the buyer's compliance with the post-closing covenants and annually reports on that compliance.

11. Will the Attorney General report the results of his review to the public?

Yes. When the Attorney General's review is complete, he will publish a report on this website.           

12. Will there be a way for the general public to offer their views regarding the proposed sale?

The Attorney General hosted a public forum in Garden City Hospital on March 26, 2014. The transcript from the public forum is available here.

Last updated: June 11, 2014