Seven months after Michigan Attorney General Frank Kelley sued to block the state's first for-profit hospital deal, Michigan remains a bastion of not-for-profits.
The eighth most populous state lacks a single proprietary hospital among its 167 acute-care facilities, and no new for-profit deals have been announced there.
Michigan has always been inhospitable to for-profits. But Kelley's legal challenge last June of a 50-50 joint venture between Michigan Capital Medical Center in Lansing and Columbia/HCA Healthcare Corp. could prolong the chill.
Kelley was backed up by Ingham County (Mich.) Judge James Giddings, who ruled in the case that joint ventures between not-for-profits and for-profits are illegal under state law. The ruling poured cold water on a popular expansion strategy for-profit hospital companies have used elsewhere: forging alliances to give not-for-profits the capital they need while allowing them to preserve some local control.
Last week Michigan Capital's parent company, Michigan Affiliated Healthcare System, vowed to appeal in state court after learning that Giddings refused to reconsider his ruling. That appeal is expected to take between six months and two years.
Meanwhile, hospitals will be reluctant to do full-asset sales to for-profits, said David Seaman, executive vice president of the Michigan Health and Hospital Association. In addition to legal fears, he said some hospitals might fear a boycott by auto workers. The United Auto Workers union opposes for-profit hospitals.
"The idea of a partnership where the community would retain significant shares and have control over strategic changes sounds great," he said. "The idea of selling outright . . . . I think that's going to be a harder sell."
The litigation apparently has not lessened Columbia's desire to do business in Michigan. Jeff Prescott, spokesman for the Nashville, Tenn.-based chain, said the company is still talking to hospitals in the state. He described the lack of new deals as "just the course of things.
"Doing a (full) acquisition of a facility is perfectly acceptable to us. In some cases we prefer that. It's not something we view as slowing down or causing us not to do other deals in Michigan," he said.
Michigan Affiliated said it's nearing a new deal with Columbia in which it would sell 100% of its assets to the chain with a provision to buy back 50% if the ruling is overturned.
One question is whether the attorney general will give his blessing to a full sale. Assistant Attorney General Frederick Hoffecker maintains his boss isn't opposed in principle to for-profit sales, but will investigate whether the sale price is fair and whether the proceeds are used appropriately.
Michigan Capital's attorney, Robert Stocker, said he will meet with the attorney general before any new deal is finalized.