The Chronicleís Todd Ackerman and Loren Steffy did a good job in this weekend article of chronicling the series of bad bets that Baylor College of Medicineís Board of Trusteeís made in the wake of the schoolís unfortunate 2004 divorce from The Methodist Hospital. Baylor Medís travails have been a regular topic on this blog, most recently here.

The elephant in the parlor of Baylor’ Medís financial problems is the $600 million in bond debt that Baylor Med incurred in connection with its currently mothballed hospital project. Indeed, the difference between the total bond debt and the value of the underlying collateral would gobble up a large chunk of Baylorís endowment, which is currently a tad under a billion dollars. That was enough to scare off Rice University, although I question whether that was the right long-term decision for Rice.

So, the future is bit cloudy for Baylor. But what Iím wondering is whether there is a local partnership that could bail Baylor out of most of current problems while providing an essential benefit for the Houston community?

The last time I look into the issue, estimates in the Houston metro area has one of the largest percentages of uninsured residents in the U.S. (over 30% versus a national average of about 16%). The Harris County Hospital District ultimately ends up with the issues involved with financing indigent care as well as ensuring that adequate medical facilities exist for local citizens.

Given the HCHDís projected need for facilities to keep up with the growth of the Houston area, it makes sense for the HCHD to engage Baylor in discussions over a partnership in which HCHD would make an investment in the hospital in return for Baylorís agreement to staff the institution as its primary teaching facility.

Baylor and the HCHD already work closely in connection with the staffing of the Ben Taub Hospital trauma unit in the Texas Medical Center. A pure teaching hospital for Baylor would provide a quasi-public, low-cost alternative to the Med Centerís impressive but expensive array of private hospitals.

Sure, the details would have to be worked out, such as management of the facility. But doesnít such an investment by the county make sense, particularly when compared to ones such as this?

So, Rice University last week finally decided to pass on the proposed merger with Baylor College of Medicine.

In theory, the deal makes sense. Both are top-notch academic institutions with campuses within a stoneís throw of each other. Each institution would have given the other something that it needs. Baylor would have gotten the financial support of Riceís multi-billion dollar endowment, while Rice would have landed a strong scientific research and clinical care center in one of the nationís leading medical institutions, the Texas Medical Center.

Although Rice President David Leebron supported the merger, large segments of the Rice faculty and alumni opposed the deal, primarily on financial and cultural grounds. Indeed, my sense is that Leebron quit pushing the Rice Board of Trustees to approve the deal when it became apparent that a consensus of Rice constituencies were opposed to the marriage.

And Baylor clearly finds itself in precarious financial condition, not completely of its own doing. After its 54-year teaching hospital relationship with Methodist Hospital soured in 2004, and a subsequent deal with St. Lukeís Episcopal Hospital did not work out, BCM decided on a plan to go it alone and build its own teaching hospital.

However, the ambitious deal has been pretty much a disaster from the start. After floating almost $900 million in bonds to finance construction of the hospital, Baylor announced last year that it was temporarily suspending construction of the hospitalís interior as it works through its financial problems.

Meanwhile, BCM has lost over $300 million since the split with Methodist. Inasmuch as Baylorís endowment is less than a billion, those kinds of losses have placed BCMís financial condition at risk. Already in in technical default on multiple bond covenants, BCM is now facing the prospect of hiring a bondholder-required ìchief implementation officerî to oversee an overall financial reorganization. That would have been avoided if the Rice merger had succeeded.

Thus, Rice certainly had understandable reasons for passing on the deal.

Nevertheless, I wonder ñ did Rice make the right decision?

Despite its financial woes, BCM remains one of the elite medical and research institutions in the U.S. The merger would have undoubtedly brought a substantial increase in research funds in such fields as bioengineering, neurobiology, nano-biotechnology, stem cell biology and gene therapy. Although Rice would have been subsidizing BCMís financial problems in the short term, my sense is that the increase in research resources flowing to Rice over the years would ultimately make that bailout well worth it.

But even more importantly, Rice passed on an opportunity to take a calculated risk that could well have elevated Rice, BCM, the Texas Medical Center and Houston to the forefront of medical and scientific research in the world.

Despite the risks, that kind of upside doesnít come around very often. Failing to realize that is one of the key reasons why Texas has lagged badly behind states such as California and New York in the development of Tier 1 research institutions and all the benefits that such institutions provide to the state and its communities.

Thus, Rice is keeping its chips and betting that it can develop its scientific research just fine without BCM. But if I were to place a bet on which institution is closer to the cutting edge of such research after the next 25 years, Iím still putting my chips on Baylor.