Opponents of joint ventures between not-for-profit and for-profit providers scored a victory last week as a closely watched lawsuit in Houston was settled.
As a result of the pact, members of Texas Medical Center hoping to form joint ventures with for-profit organizations will undergo rigorous scrutiny by a new governance structure and the Texas attorney general.
In an 11th-hour settlement reached last week, St. Luke's Episcopal Hospital and its landlord, Texas Medical Center, avoided a trial to determine whether St. Luke's proposed healthcare system venture with investor-owned Columbia/HCA Healthcare Corp. would violate Texas Medical Center's longstanding deed restrictions banning for-profit tenants.
The suit had been filed against St. Luke's in state district court by Texas Medical Center. The state attorney general's office joined the suit, seeking to stop the venture.
The settlement effectively canceled the deal between St. Luke's and Columbia. St. Luke's and Columbia were proposing to form three management service organizations that would be joint ventures between the two parties.
"Organizations seeking such proposals will now need two kinds of permission: permission of the board of the Texas Medical Center and permission of the attorney general of the state of Texas," said Richard Wainerdi, M.D., president and chief executive officer of Texas Medical Center, a 675-acre complex of medical institutions south of downtown Houston.
"Any institution can come to the Texas Medical Center and a new committee, which will be formed in the next 45 days, will evaluate all proposals," Wainerdi said. "This is a committee that will deal with covenants and operating worlds, which are more extensive than for-profits or not-for-profits."
Established some 50 years ago, Texas Medical Center's deed restrictions have prevented for-profit organizations from residing on the medical center's property.
"All parties agree that the deed restrictions governing the Texas Medical Center are valid, enforceable and in full force and effect," said a joint statement released by St. Luke's and Texas Medical Center. An earlier judge's ruling limited arguments relative to the deed restrictions, saying they were valid and enforceable (Aug. 19, p. 15).
The settlement was being viewed as a victory by supporters of the not-for-profit hospital sector in Houston, which has watched Columbia's empire grow to 19 hospitals in the area. The 347-hospital chain has no presence in the renowned Texas Medical Center.
Texas Medical Center, which has given land to not-for-profits, is home to 42 not-for-profit institutions including Methodist Hospital, Texas Children's Hospital, Hermann Hospital and St. Luke's, widely recognized as a premier heart center where noted surgeon Denton Cooley practices.
However, St. Luke's President and CEO Michael Jhin isn't ruling out a future venture with Columbia.
"We have options with Columbia and options with other providers," Jhin said. "We have to review those proposals together with Columbia and look at which is best, given the clearer understanding about what the deed restrictions do and do not do."
Columbia spokesman Jeff Prescott said the company "never had a signed agreement" with St. Luke's but would be open to other possibilities.
Neither Columbia nor St. Luke's would elaborate, but industry observers said managed-care contracting opportunities between the two may be one way around the deed restrictions.
Meanwhile, the board of Texas Medical Center agreed to assist its tenants with compliance with the deed restrictions "relating to for-profit activities." Heeding State District Judge Carolyn Garcia's recommendation, Texas Medical Center also agreed to host a symposium on the future of healthcare, examining ways its tenants can continue to balance patient care, education and research while "remaining true to the non-profit mission of the medical center."