The proposed settlement that would have resolved charity-care issues left over from Tenet Healthcare Corp.'s purchase of Queen of Angels-Hollywood Presbyterian Medical Center in Los Angeles fell apart last week, as two key players withdrew their support.
On Jan. 24, the California attorney general's office, which had endorsed the proposal reached last fall, withdrew its support, noting concern from community and consumer groups, the QueensCare foundation's failure to meet current charitable obligations, and doubts about the settlement's structure.
Three days later, QueensCare, the foundation that was endowed as part of the hospital sale, also backed out of the proposed settlement, citing the attorney general's stand. Legally, the foundation can't enter the settlement without the attorney general's approval.
"We were a little bit taken aback by their decision," said Barbara Pulley, QueensCare's chief operating officer.
The situation illustrates the intense sensitivities that arise when a for-profit chain buys a not-for-profit hospital, particularly one serving a low-income neighborhood.
Tenet bought 409-bed Queen of Angels in June 1998 for $86.5 million. The proceeds and other hospital assets totaling $272 million went to QueensCare. As part of the deal, the attorney general mandated that 5% of QueensCare's total assets be spent annually on indigent healthcare and other initiatives. QueensCare provides the services through four neighborhood clinics and contracts with six hospitals.
The legal trouble began with a suit filed in November 1997 by Queen of Angels physicians against the hospital board. Hoping to block the sale, the physicians accused the board of breaching its fiduciary duties. The hospital filed a counterclaim against the physicians, claiming interference in its business affairs.
After the hospital was sold, QueensCare became the plaintiff in the countersuit.
Tenet inherited the physicians' legal liabilities after the hospital purchase and joined the litigation in December 1998 when QueensCare refused to drop the suit.
Tenet then filed suit against QueensCare in January 1999 after the foundation had asked the physicians who work at its clinics to stop referring their non-QueensCare patients to Queen of Angels.
To settle all of the litigation, QueensCare agreed to greatly expand its service area and refer patients to Queen of Angels. As a condition of the sale, QueensCare was barred by the attorney general's office from sending patients to that hospital or other for-profit facilities.
In exchange for the referrals to Queen of Angels, the hospital would pay QueensCare a lump sum of $740,000 and another $377,000 per year in perpetuity.
The deal required both the attorney general's approval and the approval of a California Superior Court judge. But it unraveled when the attorney general's office withdrew its support.
According to QueensCare Chief Executive Officer Terry Bonecutter, a new settlement has been floated whereby the hospital would pay the foundation's $375,000 in legal fees and QueensCare would continue to be barred from making patient referrals to Queen of Angels. The hospital would make no other payments to the foundation. Those changes would cost QueensCare $4.5 million during the next 10 years.