Last hearing on switch to for-profit status is tonight
By Robert Weisman, Globe Staff | July 1, 2010
A loose coalition of consumer groups, community health centers, and competing hospitals plans to ask state regulators later this month to impose tough conditions on the purchase of nonprofit Caritas Christi Health Care by a New York private equity firm.
Members of the coalition already have been holding informal talks with regulators. One condition they will propose is a requirement that the buyer, Cerberus Capital Management, pledge not to sell the Boston-based chain of six Catholic hospitals for five to six years rather than the three-year period stipulated in the sales agreement. They also want Cerberus to create a charitable foundation to fund health programs in communities where Caritas has hospitals.
Caritas and Cerberus executives oppose both conditions.
But support for the changes in the purchase plan has been building slowly in recent weeks, as state officials have hosted five public hearings around Eastern Massachusetts on the proposed buyout. The deal would convert the six Caritas hospitals, including flagship St. Elizabeth’s Medical Center in Brighton and Carney Hospital in Dorchester, into for-profit businesses.
While most speakers at the hearings have backed the deal — citing Caritas promises to pay taxes, honor labor contracts, and make capital improvements to the hospitals — dozens of people raised concerns during a marathon five-hour hearing Tuesday night in Methuen. Many skeptics were affiliated with Lawrence General Hospital, which competes with Caritas Holy Family Hospital in the Merrimack Valley.
“There’s concern about a private equity firm coming in here,’’ said Ellen Murphy Meehan, a spokeswoman for Lawrence General, one of several hospitals in low-income communities worried about Cerberus. “There’s a potential for a David versus Goliath.’’
Community groups say they will air misgivings about the buyout at the state’s final public hearing, scheduled to begin at 6 this evening at the offices of Local 103 of the International Brotherhood of Electrical Workers in Dorchester.
“Limiting the protective period for Carney Hospital to three years is not enough,’’ said Daniel J. Driscoll, president of Harbor Health Service Inc., a nonprofit group that runs two community health centers and an elderly health program in Dorchester and Mattapan that have long referred patients to Carney. “We really want the state to mitigate against the unintended consequences of this deal.’’
Caritas spokesman Chris Murphy said state regulators typically require for-profit companies to set up foundations when they pay a premium for hospitals. Cerberus, he said, is paying “fair value’’ for a chain saddled with debt. As an alternative to forming a foundation, Murphy said, Cerberus has committed to maintaining about $67 million a year in charitable contributions to fund such services as neighborhood health screenings and pastoral care.
Murphy said it’s uncommon for a buyer to guarantee not to sell an acquired asset for a specific period. “A three-year commitment they [Cerberus] are making is very significant,’’ he said.
Though they privately concede it is unlikely regulators will block the deal, especially since Caritas officials say money from Cerberus is needed to continue operating, the groups expressing concerns say they will submit their proposals to the state attorney general’s office and the state Department of Public Health before the public comment period expires at the end of July.
Attorney General Martha Coakley must make a recommendation to the Supreme Judicial Court of Massachusetts, which needs to sign off on the transfer of state charitable assets to a private company. The Health Department must approve licenses for the six hospitals.
In addition to St. Elizabeth’s, Carney, and Holy Family, the Caritas hospitals are Good Samaritan Medical Center in Brockton, Norwood Hospital, and Saint Anne’s in Fall River.
Melissa Karpinsky, a spokeswoman for Coakley, said the office will encourage feedback, even after the public hearings conclude tonight.
“We will take everything into consideration,’’ said Jennifer Manley, a spokeswoman for the Health Department.
Consumer and community groups, along with some conservative Catholics who oppose the purchase outright, have questioned whether the state, as legal custodian of the nonprofit hospitals, will receive fair value for the transfer of the chain’s assets to Cerberus.
The buyout firm has agreed to assume $430 million to $450 million in Caritas debt, and allot $400 million for capital improvements, some of them already begun by Caritas. But it is not clear from the purchase agreement how much of its own money the buyer will invest. Typically, much of the money used to finance private equity deals is borrowed against the assets acquired.
“There are two pieces to the deal,’’ said Matt Wilson, campaign director at Health Care for All, a Boston consumer advocacy group. “One is assuming debt. The other is capital improvements. They’re not paying for any assets, essentially.’’
The attorney general’s office, pressed by Health Care for All and other groups, has hired consultants to evaluate whether the deal is fair and reasonable.
Murphy noted that Cerberus already has obtained a fair value assessment from accounting firm PricewaterhouseCoopers while the chain’s board obtained one from Navigant Consulting, a health care consulting firm. “At the end of the process, there’s going to be three valuations,’’ he said. “I have to assume that’s enough.’’
Robert Weisman can be reached at weisman@globe.com.
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