A draft government report that found little to criticize about hospital conversions has representatives of investor-owned facilities saying "I told you so," while conversion critics say the report doesn't dig deep enough.
The General Accounting Office prepared the report but hasn't released it publicly. MODERN HEALTHCARE obtained a copy earlier this month (Nov. 10, p. 2).
The GAO found that of the 14 transactions examined, most for-profit buyers overpaid for the not-for-profit hospitals they bought.
The report's sole criticism was that the parties often didn't allow the community enough advice on the deal or on the disposition of the charitable assets created by the conversion.
Representatives of investor-owned hospitals saw the report as vindication.
"It reinforces what the industry has been saying all along," said Shea Davis, a spokeswoman for Brentwood, Tenn.-based Quorum Health Group who said she was at the Quorum sites when GAO officials visited. "Facilities are fairly valued and there is community involvement through trustees. Trustees take (hospital conversion prospects) very seriously," she said.
Board members are also community members, so through them there is community involvement, she said. In addition, five of the 14 systems had public meetings, showing further community participation in the decision, she added.
A spokesman for Tenet Healthcare Corp., which had three not-for-profit hospital acquisitions reviewed by the GAO, called the review "exhaustive."
Lance Ignon said the report "refuted criticism of hospital conversions. This is hard evidence that (investor-owned hospitals) create valuable charitable foundations when they acquire not-for-profit hospitals."
Michael Peregrine, an attorney with Gardner, Carton & Douglas in Chicago who reviewed the report at the request of MODERN HEALTHCARE, said the GAO acknowledged that hospitals seek valuations from third parties, get multiple bids and don't always accept just the highest one.
"In my mind, it's somewhat of an affirmation that the average not-for-profit hospital board does a pretty decent job of evaluating the fundamental issues that corporate law suggests they should evaluate in a major transaction like this," Peregrine said.
But critics of not-for-profit hospital conversions say the GAO should have dug deeper into the deals and the foundations established to dispense the remaining charitable assets.
If the draft report is released, "the GAO risks becoming a parody of the conversion process itself," said Linda Miller, executive director of the Volunteer Trustees for Not-For-Profit Hospitals.
"They need to document and verify the terms of the deal to pierce the veil of secrecy rather than legitimize the (public relations) spin of the (investor-owned) hospitals," she said.
For example, Miller said the GAO didn't examine the contracts that create the foundations.
"To accept the promises and covenants and not look at the language is to misunderstand the looseness of the these deals," Miller said.
Miller added that she had first-hand knowledge that some of the information provided by the hospitals to the GAO was not accurate and that she was forwarding that information to the GAO.
Another not-for-profit hospital industry lobbyist, who asked not to be identified, said the GAO had not "dug deep enough. This barely scratches the surface."
Richard Wade, senior vice president of communications at the American Hospital Association, said the AHA agreed with the GAO that the participating hospitals should be more accountable to the community during the sale process no matter what hospitals are involved.
"To have these deals go down in secret undermines the public's confidence in institutions regardless of ownership status," Wade said.