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Globe Editorial

Caritas deal sounds good, but more assurances are needed

August 22, 2010

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THERE ARE good reasons to support the proposed sale of Boston-based Caritas Christi Health Care to New York private equity firm Cerberus Capital Management. In addition to protecting over 12,000 in-state jobs, Cerberus has promised to pay off the non-profit hospital chain’s debt, permanently secure employees’ pensions, earmark $100 million for hospital renovations and expansions, create up to 4,300 new jobs, and increase the system’s footprint by 117,000 square feet. With promises like that, it’s no wonder elected officials including Senators John Kerry and Scott Brown are urging Attorney General Martha Coakley to approve the deal. But before Coakley signs off, she must obtain from Cerberus a clearer sense of how it plans to achieve these goals, and a new commitment of a longer time period before the firm can back out by selling the hospitals.

In a complicated deal like this one, any change can be a serious obstacle. But, if satisfied, these changes would do much to bolster public confidence that this is, indeed, a good deal for the Boston community. If Cerberus fails to provide the needed information and commitments, it would raise questions about the viability of its plan. In addition to being Massachusetts’ 10th largest employer, the Boston Catholic Archdiocese-affiliated Caritas currently serves 600,000 patients annually at a relatively affordable rate. And, because of its community focus, it provides $66 million worth of charitable services like free health screenings and substance abuse workshops to 85 different communities. Cerberus, to its credit, has promised to maintain these programs, but it still needs to show how it can afford to do so while transforming its hospitals from nonprofit entities to for-profit businesses.

Many health care advocates don’t think it can, and they worry that Cerberus, a firm with no experience operating a hospital, let alone six, has not released a sufficiently detailed explanation of how it intends to boost revenues. In essence, Cerberus believes that by improving the facilities and services at Caritas hospitals, it will be able to attract a large number of patients who currently leave their communities to patronize faraway facilities in Boston. But it’s unclear whether this potential boost in patient volume could net Caritas hospitals enough money to satisfy Cerberus’s investors. And what if it doesn’t? Will Caritas raise prices? Cut services? Close facilities? Cerberus is asking for a stake in Massachusetts’ fragile ecosystem of community hospitals, and if it stops providing certain services, there would be a domino effect on other hospitals. With that in mind, the firm should have already shared a detailed business plan with the public. Since it hasn’t, the attorney general should make those plans public as a part of the approval process.

Cerberus has already made one move that favors its investors’ interests over that of the state’s interconnected system of mostly nonprofit hospitals. It has insisted it be given the option to sell its hospitals or take them public after only three years. This is a normal timeframe for turnovers in the business world, but in the health care industry, entities taking over financially troubled hospitals have been known to guarantee ownership for seven, 10, or even 25 years. The attorney general should press Cerberus to extend its time commitment to at least seven years. While this move would certainly worry some of Cerberus’ investors, it would also illustrate the firm’s commitment to the long-term viability of the state’s health care system. Protecting that system should be Coakley’s top priority.The attorney general’s review process is the best opportunity the state has to safeguard the public against any unforeseen consequences that may result from the sale. She must nail down Cerberus’s business plan and carefully determine whether it makes financial sense. But she must also consider what will happen if Cerberus’s gamble goes bust. This is a plausible enough scenario to proceed with caution. There is much to gain for Massachusetts in the sale of a struggling hospital chain to new owners with deep pockets, but also much to lose.