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The Caritas Deal Deserved AG Approval

Posted by Scott Harshbarger  October 22, 2010 01:11 PM

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On October 6, 2010, Massachusetts Attorney General Martha Coakley released a report related to the proposed transfer of the Caritas Christi Hospital System ("Caritas") to Steward Health Care System LLC, an affiliate of Cerberus Capital Management, L.P. The report, "The Statement" contains the Attorney General's analysis – under Massachusetts charitable law and the Attorney General's role as public charities overseer – of its five month evaluation and assessment of the proposed sale of Caritas to Steward, a newly-created for-profit entity, controlled, owned and funded by Cerberus, a private equity fund. The Attorney General supports the sale, with a variety of conditions designed to protect health care consumers in Massachusetts, and made that recommendation to the Massachusetts Supreme Judicial Court, the ultimate arbiter. (A hearing before Single Justice Spina was held on October 20, and a decision is expected by end of the month.)

There has been a fair amount of spirited commentary among healthcare industry leaders about the Attorney General's approval. While the sale clearly benefited Caritas, many questioned whether the terms and conditions demanded by the AG sufficiently protected the broader public interest, now and in the future, especially given the for-profit nature of the purchaser. The answers lie in the comprehensive analysis of the history and evolution of this transaction, and the detailed comments and findings of fact, law and policy set forth in the 29-page Statement. The Statement, frankly, is an exceptional document and a Must Read for any skeptic, or any of us who wonder if the AG could and should have gone further. (In fact, in a 9-page Appendix, the AG explicitly responds to this public commentary and critique.)

Simply put, the AG was correct in her approval and support of this deal, on the facts and the law, given the opportunity to ensure the survival of these hospitals which provide care for approximately one million patients per year, in some of the most economically challenged communities in Massachusetts.

This transaction with Cerberus is the only economically viable response to the fundamental issue at stake – protecting the medical care, jobs, pensions, charitable care and community programs and services provided by the hospitals. Cerberus has committed to invest $495 million to pay all of the system's debt and fully fund and guarantee all retiree pensions. In addition, they will maintain the current senior management team locally and inject the $400 million capital infusion needed to repair the system's infrastructure. This financial infusion protects Caritas in the short term but allows for long term stability, not to mention preserving the 12,000 jobs already in existence across the Caritas system and the jobs that will be created by additional economic development opportunities in the communities that Caritas Christi serves, and funding what is now a huge unfunded pension liability.

Years of poor financial performance and deteriorating facilities have plagued the Caritas system. Frankly, I was surprised that so many people appeared to be shocked with the recent news that without this deal some of the hospitals would be forced to close. Anyone who has lived in this area surely understands the fact that most of the Caritas hospitals, notably Carney Hospital, have been on the financial brink for the past several years and without the unwavering support of influential public officials and community leaders these hospitals would have closed. The AG, in approving the sale, requires all of the hospitals to remain open for three years, and has imposed a conditional five year moratorium on closures. To be sure, the enforcement of all these conditions by the AG and the Caritas Executive team and Board are crucial to protect the public interest.

However, one must not forget that the hospital business is unusual. People lay personal claim to the hospitals in their communities and the six Caritas hospitals are no different. So many of life's most significant events unfold in hospital wards that it's small wonder these institutions become part of our emotional fabric in the same way our schools and churches do. Patients often view themselves as stakeholders, rather than customers – this is the state of affairs when curing sickness and delivering babies is the business at hand. With that in mind, the Attorney General and the Department of Public Health, in evaluating whether the public interest was furthered by this sale, certainly were moved by the Caritas employees, patients and community members who took to the microphone at the public hearings and spoke in support of the deal and what it meant for them, their families and their communities.

The Attorney General expressly identified the 20 facts, law, policy, and condition components that she found beneficial to and consistent with the public interest in concluding that the sale and subsequent approval of the sale, with stronger conditions to protect the public interest, including retained oversight of Steward Health Care, has resulted in a good deal for both Caritas and Massachusetts. That said, recognizing the magnitude of this deal, the inevitable risk of unintended consequences, and the critical role that these hospitals play in their communities and regions, it would still be important and prudent for there to be continued oversight and monitoring of the system and the agreements by an independent, third party, reporting regularly to the AG and Caritas who could advise the Attorney General's Office.

The AG correctly points out that, as a matter of law and her authority, Caritas should not be defined by its tax status, its physical assets or its profit margins. Rather it should be defined by the quality of care provided to its patients and its impact on the communities it serves as a healer, employer, neighbor, and community resource. Furthermore, with the approval of this sale, the Caritas system has the potential to build a health care system that furthers both competition and consumer choice, and, by its survival, can assist in the effort by the AG and others to mitigate the unsustainable health care cost increases that the Commonwealth and nation sees every year.

One final note: While a change of this type and magnitude inevitably challenges the status quo, the evaluation process and performance of the AG, in advance of the ultimate legal decision making by the Massachusetts Supreme Judicial Court, should give us all comfort – and has certainly enhanced the protection of the public at every level, whether you agree in all the particulars or not. The consequences, predictable and unintended, will be interesting to observe. The challenge now is to effectively oversee implementation, because the devil is in the details.

This is a Community Voices blog. This blog is not written or edited by the staff of Boston.com or The Boston Globe. The author is solely responsible for its contents.
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About the author

Scott Harshbarger's distinguished public career includes serving two terms as Massachusetts Attorney General (and President of the National Association of Attorneys General)  and as the Democratic candidate for Governor of More »

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