Healthcare merger traffic between Providence, R.I., and Boston has been slowed by a nasty speed bump at the border of Rhode Island and Massachusetts.
Rhode Island's attorney general, using his regulatory power, has forced two interstate mergers to put the brakes on consolidation and restructuring until he's satisfied that charitable assets of Rhode Island hospitals are not leaving the state for good.
Despite that hard line, a third contingent from Providence has decided to head for the border to rendezvous with a Boston-based merger partner.
In New England, where a half-dozen states occupy an area the size of Nebraska, healthcare organizations have begun to think regionally instead of allowing political boundaries to stand between promising partnerships.
Lifespan, a Providence-based system formed in 1994, blazed the path last November by completing an affiliation with New England Medical Center of Boston.
Care New England, another Providence-based system, agreed last July to merge with Boston-based CareGroup, which includes Beth Israel Deaconess Medical Center among its five eastern Massachusetts hospitals.
Earlier this month, St. Joseph Health Services reached out from Providence to Boston for a Catholic merger partner after abandoning hope for an affiliation with Lifespan.
The Roman Catholic bishop in Providence, taking a Vatican cue, called off the proposed Lifespan merger late last year even after it had been carefully crafted to withstand ethical concerns about pairing up with a partner that allows abortions and other procedures banned by the church (Dec. 15, 1997, p. 6).
The two would-be partners suspended rather than terminated their affiliation in hopes of reaching an alternative cooperative arrangement short of a corporate affiliation. They concluded, however, that it was too difficult to structure something that could win Vatican approval, said Lifespan spokesman Rick Piester.
St. Joseph instead connected with Caritas Christi, a seven-hospital system sponsored by the Archdiocese of Boston. But by going outside Rhode Island, St. Joseph traded one set of hoops for another.
The system will be following in the footsteps of Lifespan and Care New England, which are still responding to scrutiny from Attorney General Jeffrey Pine.
Armed with broad regulatory authority to protect charitable assets in Rhode Island, Pine flexed his power last year and altered the terms of Lifespan's financial contributions to New England Medical (Oct. 27, 1997, p. 17). The alternative for Lifespan would have been to go through a three-phase review process that could have dragged on for many months.
It's a process that Care New England is still going through-and after nearly a year, the second phase is just coming to a close.
The attorney general's office has 120 days to review any transactions involving not-for-profit hospitals to determine whether "charitable assets given to Rhode Island institutions are being used in Rhode Island for the benefit of Rhode Islanders," said spokesman Greg Perry. That statutory period ends July 3, said May Kernan, spokeswoman for Care New England.
The application then goes to the Department of Health for its review, assuming the attorney general clears the deal. If not, he could either attach conditions or deny the application as proposed, Perry said.
Before either review can get under way, the parties must go through months of give and take with the attorney general's office to load up the application with enough information to review, Kernan said. "It's just the nature of the process here," she said.
The spotlight on charitable assets gets its power from Rhode Island's Hospital Conversion Act enacted last year by the General Assembly.
Considered one of the strictest laws in the nation on hospital transactions, it was spurred by public opposition to Columbia/HCA Healthcare Corp.'s proposed conversion of Roger Williams Medical Center in Providence to for-profit status. The state's 11 acute-care hospitals are all not-for-profit.
A ballyhooed provision of the law dictates that if a for-profit company acquires a hospital in the state, it has to wait three years before it can convert a second hospital to for-profit. Columbia ended up backing away from the Roger Williams purchase last August.
But the act also gave the attorney general authority to contest the transfer of more than 20% of a not-for-profit hospital's charitable assets. That provision affects transactions between not-for-profits when the money is meant for Massachusetts.
Pine last year threatened to invoke the act when Lifespan offered to contribute $8.7 million a year to New England Medical for as long as 24 years, for a possible total of $209 million. That exceeded 20% of Lifespan's $970 million in charitable assets, he ruled.
With the affiliation already blessed by federal and Massachusetts regulators and set to close, Life-span would have triggered regulatory delays by not revising the arrangement, Piester said. The contribution span was limited to 10 years, or a maximum $87 million.
But Pine earlier this month demonstrated that he could intervene even after granting approval.
Pine objected to a reorganization and a change in bylaws that he said eliminated guaranteed representation of some Rhode Island affiliates, increased the influence of New England Medical and constituted a significant departure from the original agreement.
A judge in Providence granted a temporary restraining order June 16. Pine said the ruling affirms his responsibility to protect the state's charitable assets.
Lifespan Chairman Bruce Selya said the restructuring "is legally sound and appropriate" and that the system was prepared to defend it in court.
In the Care New England case, documents filed with the attorney general reveal the hospital system has agreed to pay CareGroup $25 million to cover costs of a common management information system and other healthcare network improvements.
Perry said the attorney general had not developed a position on the St. Joseph merger with Caritas Christi. But the proposal will fall under the Hospital Conversion Act and be subject to review, he said.