HCA deal to get state scrutiny
Debate over how to review Hca-healthone deal
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.