Caritas sale pumps up for-profits
Recession, reform pave way for Caritas Christi sale
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.