In an effort to understand how the sale of a major non-profit hospital to a for-profit health system impacts the community it serves before the sale takes place, the California attorney general's office turned to a prominent outside consulting firm for help.
CA Attorney general eyes community impact of hospital sale
Calif. attorney general eyes community impact
of hospital sale as state nears decision on buy-out
commissions
In an effort to understand how the sale of a major non-profit hospital to a for-profit health system impacts the community it serves before the sale takes place, the California attorney general's office turned to a prominent outside consulting firm for help.
The Lewin Group, Fairfax, VA, last month produced a detailed report on the proposed sale of the non-profit Queen of Angels-Hollywood Presbyterian Medical Center to Tenet Healthcare and is now providing additional analysis of changes in the sale agreement at the request of Deputy Attorney General James Schwartz.
State reviews of transactions between non-profits and for-profits are often focused on the financial aspects of the transaction. California's decision to hire Lewin to review the impact on the community's access to health services is a "fascinating" and groundbreaking development, according to Linda Miller, president of the Volunteer Trustees Foundation for Research and Education, which has studied hospital conversions closely.
Ms. Miller said she is not aware of any other state that has commissioned such a study as part of the attorney general's review process, although several state laws authorize the attorney general to do so.
Revised charitable spending plan
Following the release of the Lewin report last month, the two hospitals told the attorney general's office they are revising their charitable spending plan for the funds that will be generated from the sale of the assets.
At the request of Queen of Angels and "in the best interest of the public," the California Attorney General's Office said it was delaying its decision on the proposed sale from April 13 to April 30. The $98,500 cost of Lewin's original review is being paid for by Queen of Angels.
Besides analyzing the impact of the sale on the community, the Lewin Group was also charged with analyzing the relevant terms of the transaction.
Among the key findings of the Lewin Group's 56-page final report:
• Tenet's guarantee that it will keep emergency room services intact for a minimum of five years is not ironclad-contract terms could permit the company to reduce or close the ER before the end of that period.
• Future changes in Medi-Cal reimbursement and in disproportionate share payments, could reduce Tenet's willingness to serve low-income patients. In response, the hospital would be likely to eliminate services that operate at a loss such as the neonatal intensive care unit.
• Income from the sale proceeds will fund the Medically Indigent Hospital Program. The income for charity care will amount to about $6 million per year. Current spending for charity care amounts to $5.6 million annually. The Lewin Group warned, however, that the terms of the transaction allow Tenet to reduce the "charitable expenditures" by the value of taxes paid or by other charity care provided by the Tenet hospital. This places "charity care at enormous risk," the report says.
Major DSH hospital
In explaining his decision to contract with Lewin to review the transaction, James Schwartz, deputy attorney general, noted that "Queen of Angels is a very significant disproportionate share hospital. The issue (impact on the community of the buy-out) is very relevant." Some 53% of the hospital's total charges in 1996 were Medi-Cal and 6.5% were bad debt and charity care, indicating, according to the Lewin Group, "that the facility is clearly a component of the health care safety net in Los Angeles."
New legislation, which took effect Jan. 1, 1997 (Sections 5914-5919 of the California Corporations Code) authorizes the Attorney General's office to use nine factors in reviewing proposed transactions. Among these nine factors is access to services for the community.
According to Lewin Vice President Mary Jo O'Brien, a former commissioner of health in Minnesota, the value of contracting with an outside firm "depends on the complexity of the situation." In the Queen of Angels case, where "the hospital is integral to the community ... it makes some sense to have a group that is objective and can bring resources to the table," she said.
In addition to the obvious issues such as emergency care, Ms. O'Brien noted that Lewin examined many more subtle ones including what provisions the buyer might make to ensure transportation of patients to the hospital and its ability to serve a culturally diverse population.
Cardinal opposes sale
The proposed purchase of 416-bed Queen of Angels hospital is particularly complex because the community hospital is Catholic and the sale was vigorously opposed by Cardinal Roger Mahony of Los Angeles, who, in a Feb. 17 letter. ordered the board to halt the proposed sale.
The board, which has argued that it is a lay corporation to which the church's canon law does not apply," responded by amending its bylaws to eliminate any reference to the need for approval from the Catholic archbishop of such a transaction.
According to the Los Angeles Times, Tenet officials have argued that there is no inherent contradiction between community service and for-profit status.
Under terms of the sale, Tenet has guaranteed not to cut essential services, maintain charity spending and essential community services. Community advocates argue, however, that Tenet left itself loopholes in the contract that would allow it to drop emergency and obstetrical services and that the amount allocated for charity care is low and does not allow for increases.
The Lewin report supported many of those concerns.
However, a separate report commissioned by the attorney general's office to evaluate the financial aspects of the transaction reached a more positive conclusion on the transaction. The evaluation by Arthur Anderson Co. found that the proposed sale price represented at least fair market value.
Contact Ms. O'Brien at 703-218-5500 and Ms. Miller at 202-659-0338.
In an effort to understand how the sale of a major non-profit hospital to a for-profit health system impacts the community it serves before the sale takes place, the California attorney general's office turned to a prominent outside consulting firm for help.
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