HCA deal to get state scrutiny

De­bate over how to re­view Hca-healthone deal

Modern Healthcare - - Front Page - Vince Gal­loro

All sides agree that Colorado At­tor­ney Gen­eral John Suthers will re­view HCA’s pro­posed buy­out of its not-for-profit part­ner in a Den­ver joint ven­ture. The ques­tion is whether he will do so un­der his com­mon-law au­thor­ity over char­i­ta­ble as­sets or, as some crit­ics are urg­ing, un­der the more-strin­gent re­quire­ments of the state’s Hos­pi­tal Trans­fer Act.

In a letter to the at­tor­ney gen­eral’s of­fice, one critic, lawyer Richard Hen­nessey, pro­vided a legal opin­ion by lawyer John Moye ar­gu­ing that Nashville-based HCA’s $1.45 bil­lion of­fer to buy the Colorado Health Foun­da­tion’s 40% stake in Den­ver-based HealthOne should be re­viewed un­der the act. The foun­da­tion’s board votes are needed for the joint ven­ture to make “sig­nif­i­cant busi­ness de­ci­sions,” Moye wrote, so the foun­da­tion sell­ing its equity in­ter­est and los- ing its board seats con­sti­tutes giv­ing up con­trol over the hos­pi­tals, thereby trig­ger­ing the need for re­view un­der the act.

The foun­da­tion, in a legal memo filed with Suthers’ of­fice, con­tends that the hos­pi­tals pre­vi­ously owned by the foun­da­tion’s pre­de­ces­sor or­ga­ni­za­tion al­ready have been trans­ferred to the joint ven­ture, so sell­ing its mi­nor­ity stake does not con­sti­tute a trans­fer of as­sets. Also, the foun­da­tion’s lawyers ar­gue, giv­ing up its 50% rep­re­sen­ta­tion on the joint ven­ture’s board does not con­sti­tute trans­fer of con­trol be­cause the joint ven­ture al­ways has vested day-to-day man­age­ment with HCA, sub­ject to the joint ven­ture’s op­er­at­ing agree­ment.

The Colorado Cen­ter on Law and Pol­icy agreed in a letter to Suthers that the deal does not meet the stan­dards for re­view un­der the act. In the letter, how­ever, the cen­ter urged Suthers to hold a pub­lic hear­ing as part of his re­view. The cen­ter, whose ad­vo­cacy units in­clude one on health­care ac­cess, has not taken a po­si­tion yet on the mer­its of the deal, ac­cord­ing to its ex­ec­u­tive di­rec­tor, Christine Mur­phy.

Richard An­der­son was a mem­ber of the HealthOne Health Sys­tem board be­fore it com­pleted its 1995 deal to form a joint ven­ture with what was then known as Columbia/HCA Health­care Corp. (now HCA). An­der­son served on the board of the suc­ces­sor or­ga­ni­za­tion, HealthOne Al­liance (now the CHF), from 1995 to 2003. An­der­son said in an in­ter­view that he sup­ports the call to re­view the trans­ac­tion un­der the act be­cause he be­lieves this would scut­tle the deal, thereby main­tain­ing lo­cal con­trol of the sys­tem of seven hos­pi­tals and 13 am­bu­la­tory surgery cen­ters.

“In 2002 and 2003, HCA made sev­eral over­tures as to whether the foun­da­tion would sell its in­ter­est,” An­der­son said. “There was con­sid­er­able study, but the board re­jected the of­fer.” An­der­son noted that the price on of­fer now is about twice what HCA of­fered in 2003. “But I’m not clear on how you es­tab­lish a value for com­mu­nity con­trol,” he added.

That fi­nan­cial strength also points to the op­por­tu­nity to ex­pand the foun­da­tion’s mis­sion across the state by re­main­ing in the joint ven­ture and ac­quir­ing or build­ing other hos­pi­tals, An­der­son said. The joint ven­ture fi­nanced the build­ing of 185-bed Sky Ridge Med­i­cal Cen­ter in Lone Tree, Colo., with op­er­at­ing cash flow, he said.

A com­mu­nity board would over­see com­mu­nity ben­e­fit pro­grams for at least 10 years af­ter clos­ing the deal, ac­cord­ing to the foun­da­tion’s legal memo. HCA also agreed to in­clude covenants in the sales agree­ment that would main­tain char­ity-care poli­cies for 10 years, con­tinue par­tic­i­pa­tion in Medi­care and Med­i­caid and also con­tinue cur­rent grad­u­ate med­i­cal ed­u­ca­tion pro­grams for an un­spec­i­fied pe­riod of time. In ad­di­tion, the memo states that the deal should not re­quire an­titrust re­view by the Fed­eral Trade Com­mis­sion nor li­cens­ing re­view by the Colorado Depart­ment of Pub­lic Health and En­vi­ron­ment, leav­ing the state at­tor­ney gen­eral’s re­view as the sole reg­u­la­tory ap­proval needed.

Linda Kanamine, a spokes­woman for HealthOne, said full own­er­ship by HCA would not change HealthOne’s com­mit­ment to serv­ing the unin­sured, the un­der­in­sured or pa­tients cov­ered by gov­ern­ment health plans.

Mike Sac­cone, a Suthers spokesman, said the at­tor­ney gen­eral’s of­fice is still de­ter­min­ing whether the deal is cov­ered by the Hos­pi­tal Trans­fer Act and has no time frame for mak­ing that de­ter­mi­na­tion.

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