Car­i­tas sale pumps up for-prof­its

Re­ces­sion, re­form pave way for Car­i­tas Christi sale

Modern Healthcare - - Front Page - Joe Carl­son

Time was, the prospect of con­vert­ing Catholic hos­pi­tals into div­i­dend-pay­ing busi­nesses drew the sharp ire of work­ers and re­li­gious cler­ics alike. Fif­teen years ago, amid the last great ex­pan­sion of for-profit health­care, Wil­liam Cox, then vice pres­i­dent of the Catholic Health As­so­ci­a­tion, de­clared that Catholic health­care was “un­der as­sault,” while Chicago’s Car­di­nal Joseph Bernardin urged the providers to re­sist “sac­ri­fic­ing al­tru­is­tic con­cerns for the bot­tom line” (Jan. 16, 1995, p, 8).

Fast for­ward to Novem­ber 2010, when the clos­ing of an $895 mil­lion deal to turn six Catholic hos­pi­tals for­merly owned by the Arch­dio­cese of Bos­ton into the largest for-profit sys­tem in New Eng­land was greeted not with scorn, but praise.

The hos­pi­tals’ union en­dorsed last week’s pur­chase of Car­i­tas Christi Health Care by New York pri­vate-eq­uity firm Cer­berus Cap­i­tal Man­age­ment, as did the Demo­cratic at­tor­ney gen­eral and lo­cal pa­tient ad­vo­cates.

Even the Vat­i­can signed off on the sale of Car­i­tas Christi to the pri­vate buyer of dis­tressed busi­nesses, de­spite the pres­ence of un­usual con­tract lan­guage that could even­tu­ally al­low the new own­ers to strip the Catholic iden­ti­ties from the hos­pi­tals in a city that has long har­bored one of the dens­est con­cen­tra­tions of Ro­man Catholics in the U.S.

So what changed? Ex­perts say that’s not just an aca­demic ques­tion, as cash-starved com­mu­nity hos­pi­tals all across the coun­try con­tinue the never-end­ing hunt for cap­i­tal. They say the ex­pe­ri­ence in Bos­ton is likely to open many more minds to the pos­si­bil­ity of sell­ing to a for-profit sys­tem.

Ob­servers say the Great Re­ces­sion has de­flated op­er­at­ing mar­gins so se­verely at some com­mu­nity hos­pi­tals that they’re look­ing for ways just to keep the doors open. The money from Cer­berus re­tires all ex­ist­ing sys­tem debt, makes the pen­sion fund sol­vent again, and kicks off a se­ries of cap­i­tal projects, from fix­ing leaky roofs to build­ing a new med­i­cal of­fice build­ing. “Most of our com­mu­nity hos­pi­tals have been starved for cap­i­tal for decades,” said Don­ald Thieme, ex­ec­u­tive di­rec­tor of the Mas­sachusetts Coun­cil of Com­mu­nity Hos­pi­tals, one of the many or­ga­ni­za­tions that even­tu­ally came out in sup­port of the Car­i­tas deal if it in­cluded strict over­sight.

Com­bine the cap­i­tal crunch with the tim­ing of health­care re­form, which is de­mand­ing mas­sive cap­i­tal in­fu­sions to im­prove health­care de­liv­ery. And then con­sider the 2006 find­ing by the Con­gres­sional Bud­get Of­fice that not-for-profit hos­pi­tals pro­vide on av­er­age only slightly more un­com­pen­sated care than their in­vestor-owned peers: 4.7% of op­er­at­ing ex­penses at tax-ex­empt hos­pi­tals ver­sus 4.2% at for-prof­its (Dec. 11, 2006, p. 12).

Sud­denly, the con­ver­sion to for-profit sta­tus can start to look like a way for com­mu­ni­ties to get most—if not all—of the ben­e­fits of com­mu­nity own­er­ship, while hos­pi­tals im­prove their phys­i­cal plants through new cash in­fu­sions and lo­cal gov­ern­ments re­ceive new tax dol­lars.

“For us, be­ing a for-profit sys­tem is a tax sta­tus, not a mis­sion state­ment. We are here to serve our com­mu­ni­ties just as we were be­fore. The only dif­fer­ence is now, we will also serve the com­mu­ni­ties by pay­ing taxes,” Car­i­tas spokesman Christo­pher Mur­phy said.

Car­i­tas of­fi­cials es­ti­mate that they will pay about $20 mil­lion a year in new taxes.

While the pub­lic was ini­tially skep­ti­cal of the deal, many of the con­cerns were al­layed through ex­ten­sive pub­lic hear­ings and a thor­ough re­view of the trans­ac­tion by At­tor­ney Gen­eral Martha Coak­ley, who im­posed new re­stric­tions on the deal, in­clud­ing the ap­point­ment of an in­de­pen­dent monitor who will po­lice the terms of the deal, and a guar­an­tee that makes it al­most im­pos­si­ble to sell or close any of the hos­pi­tals for five years.

“Af­ter the con­di­tions were put on the deal,

The con­ver­sion will trans­form Car­i­tas Christi into the largest for-profit sys­tem in New Eng­land.

Ni­cholas: Area hos­pi­tals see this as po­ten­tial com­pe­ti­tion.

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