Monday, January 28, 2013

Nonprofit Hospital Purchasers: Let This Be a Lesson to You!

From The Chronicle of Philanthropy, citing The Kansas City Star and The New York Times, comes this report on a lawsuit brought by a foundation that received most of the proceeds from the 2003 sale of the nonprofit hospitals previously owned by Health Midwest to Hospital Corporation of America (HCA), the larger operator of for-profit hospitals in the country.

In the sales agreement, Health Midwest required HCA to undertake certain activities, including providing an estimated $500,000,000 in charity care and to spend approximately $450,000,000 to improve existing health care facilities.  The Health Care Foundation of Greater Kansas City filed suit against HCA in 2009, allegeing that HCA had not complied with these provisions in the the original sales agreement.  The case went to trial in late 2011.

In its Final Order (warning: 142 pages!) issued on January 24, 1013, the trial court found that HCA failed to comply with the requirement to spend the allotted funds on existing health care facilities.  In addition, the court was concerned about HCA's compliance with its charity care requirements, but found that the level of detail provided by HCA was insufficient to make a final determination on the matter. 

From my brief review of the Order (I emphasize brief - did I mention 142 pages?), it appears that the capital improvements issue hinged primarily on the language of the sales agreement, which required the capital improvement spending to occur in "existing" facilities, and not in new or replacement facilities.  (My personal highlight of the Order in this regard - paragraphs 140 and 141, wherein the Court states that the then Chair and CEO of HCA admitted to not reading the full agreement before signing it and to understanding the operative language to be "legalese".)   The court found a minimal short fall in capital improvements of approximately $162,000,000, to be paid immediately to the Foundation, with more possibly to follow based on a court-supervised accounting.

With regard to the issue of charity care, the sales agreement specifically divided the world between charity care and care for indigents (based on gross charges foregone), and uncompensated care (based on bad debt).  See Paragraph 208.  A separate part of the agreement required HCA to continue to participate in Medicare and Medicaid for ten years.  See Paragraph 210.   Apparently, the Attorneys General of both Kansas and Missouri had requested information breaking down HCA's expenditures between charity care and uncompensated care, to no avail.  See Paragraph 456, et. seq.   Some of the compliance reports issued by HCA with regard to charity care compliance appeared incomplete and inconsistent.  As a result, the order requires the court-supervised accounting to look specifically at the provision of charity and uncompensated care as mandated by the sales agreement.

According to The Kansas City Star article, "HCA representatives have consistently said the company met or surpassed its obligations, and ... said the company would appeal the decision."


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