A Michigan trial court judge has declared his state hostile ground for joint ventures between not-for-profit and for-profit hospitals, ruling late last week that such deals violate Michigan laws governing public charities.
In doing so, Ingham County Circuit Court Judge James Giddings voided the proposed 50-50 joint venture between Michigan Capital Healthcare, the parent corporation of Michigan Capital Medical Center, a two-campus, 369-bed not-for-profit hospital system in Lansing, Mich., and Columbia/HCA Healthcare Corp., the nation's largest for-profit chain, based in Nashville, Tenn.
The deal, unveiled in June, would have resulted in Michigan Capital becoming the first for-profit hospital in Michigan. But, 10 days after the announcement, the Michigan attorney general's office challenged the joint venture (June 24, p. 2).
Giddings' ruling, handed down late last week, appears to have left Michigan Capital holding the bag and let Columbia off the hook. Giddings granted Columbia's motion to be dismissed as a defendant in the case.
A written statement from Michigan Capital raised uncertainty about its future relationship with Columbia. Commenting on what the system's next move would be, it said: "Some-but not all-of those options include appealing the ruling, seeking financing from the bond market to refinance the organization's debt, and selling all of its assets."
Giddings said a wholesale divestiture of a not-for-profit organization's charitable assets is allowable under state law.
But, Dennis Litos, Michigan Capital's president and chief executive officer, told the Associated Press: "We're not giving up on some relationship with Columbia. (Giddings) left the door open" to another fiscal arrangement, such as the sale of the Lansing hospital to Columbia. "I'm somewhat confused by his opinion. I am certainly disappointed," he said.
A spokesman for Michigan Capital said system executives would not be commenting beyond what was said in their press release. He added that a decision on the system's next move may occur as early as this week. A Columbia spokesman didn't return phone calls.
In a prepared statement, Michigan Attorney General Frank Kelley applauded Giddings' ruling, saying: "The court has acted to protect the fruits of charity from greed." A Kelley spokesman added: "This is a very clear victory for the people of Michigan. They cannot do the deal as proposed."
Specifically, Giddings said Michigan law does not permit assets of a not-for-profit hospital legally formed for charitable purposes to be transferred to a for-profit joint venture.
"I find no authority for them to do that," he said. "I do not believe that's permissible under Michigan law."
Under the proposed transaction, Columbia would pay half the value of Michigan Capital's assets-or $43.8 million-in exchange for operating control and half the future profits of the new company. Columbia also would contribute $10 million in capital and other resources to the joint venture.
The joint venture model has become an increasingly popular collaboration model for Columbia, as it pursues increased market share by cutting deals with not-for-profit hospitals that don't want to sell all their assets. As of Aug. 15, nine of 14 hospitals that had signed letters of intent with the for-profit chain involved 50-50 ventures (Sept. 2, p. 84).
The effect the Michigan ruling might have on this strategy was unclear.