I read the article about MissionHealth in your Feb. 2 issue ("Dealmaker changes tune," p. 22) and appreciate the disclaimer reporter Deanna Bellandi included about my comments being made without specific knowledge of the company.
I am concerned that an important detail of how Joshua Nemzoff proposes to structure deals between MissionHealth and not-for-profit, tax-exempt hospitals was overlooked, and as a result, the article incorrectly characterizes how such a partnership would work. Unfortunately, the article could be used to mislead trustees and executives. The article states that hospitals in which MissionHealth invests will retain their tax exemptions. However, it is not possible for a private company or individual to have an equity interest in a not-for-profit, tax-exempt entity, be it a hospital, church or other charitable organization.
A not-for-profit, tax-exempt organization must be organized and operated exclusively for charitable purposes and is prohibited from engaging in any activity that causes the organization's net earnings to inure to, or benefit, private individuals. Thus, an "investor" in a not-for-profit organization would cause that organization to lose its tax exemption. The law does allow not-for-profit organizations, including hospitals, to contribute their assets to a partnership. Private investors may hold equity interests in the partnership, but the object of the partnership (in this case, the hospital) for tax purposes, is considered a private, profitmaking enterprise.
In this case, the partnerships or joint ventures MissionHealth proposes are little different from those Columbia/HCA has entered with not-for-profit hospitals over the past few years, except that the not-for-profit partner would manage hospital operations and hold a controlling interest in the partnership. The hospital itself would still become a for-profit business enterprise with its first duty being to make a reasonable return for investors.
Nemzoff's approach to equity financing in the not-for-profit hospital sector is one of the oldest games in for-profit healthcare.
Senior vice president, VHA