Pennsylvania lawmakers are considering legislation that would increase public scrutiny of consolidation deals between not-for-profit healthcare providers.
The bill essentially would put into law the process state Attorney General Mike Fisher already uses to review deals.
More importantly for Fisher, the law would compel not-for-profits doing deals with each other to notify the attorney general of their transactions.
"We frequently find out about a transaction after it's over," said Linda Williams, senior deputy attorney general.
The reason is that not all not-for-profit organizations believe they must notify the attorney general or seek court approval for their deals when they involve other not-for-profits because the assets remain in the charitable sector, Williams said.
"We need the law to be stronger," said Sean Connolly, Fisher's spokesman. "There should be no way around the attorney general scrutiny."
The bill, introduced late last year by state Sen. Timothy Murphy, a Republican from Allegheny County, would refine the not-for-profit corporation law. That means it would apply to organizations other than healthcare providers, such as institutions of higher education and museums.
Since 1990, 35 states and the District of Columbia have enacted 70 laws regulating not-for-profit conversions, including both hospitals and insurance companies, according to the Washington-based National Conference of State Legislatures.
Such a law in Pennsylvania would have a profound effect on not-for-profit hospitals, which dominate the hospital landscape there. Of the state's 212 acute-care hospitals, 203 are not-for-profit, according to the latest information from the American Hospital Association.
Linda Miller, president of the Volunteer Trustees of Not-For-Profit Hospitals, also in Washington, said nine states have some sort of review for deals between not-for-profits.
A motivating force behind Murphy's bill was a high-profile healthcare debacle involving a not-for-profit in his home county.
In 1998, Pittsburgh-based Allegheny Health, Education and Research Foundation, which had grown to become a statewide network of 14 hospitals, declared bankruptcy. Its Philadelphia and Pittsburgh facilities were then sold (Nov. 22, 1999, p. 2).
But attorney general review and court approval are no guarantee a consolidation deal will be successful.
For example, Fisher's office reviewed the 1997 merger that created Harrisburg-based Penn State Geisinger Health System. The three-hospital system announced in November 1999 that it was pulling the plug on its merged system after 21/2 years because the organization failed to meet financial and operational goals (Nov. 22, 1999, p. 2).
Fisher, who spoke earlier this month at the Pennsylvania Newspaper Association's Government Affairs Conference, said he suspected the Penn State-Geisinger deal would fail because the two systems had very different cultures, according to a published news report. However, he said his authority was limited to whether the merged system would violate antitrust laws, so he never aired his concerns publicly.
The bill would expand Fisher's authority to now require public hearings on such deals. The attorney general also would be able to hire experts and consultants to review deals and then recoup the costs for this outside advice from the merging parties.
The Hospital and Healthsystem Association of Pennsylvania has been working with the attorney general's staff to iron out the finer points of the proposal, said James Redmond, senior vice president for legislative services at the state hospital association.
"We support a public review process for merger and acquisition and conversion of nonprofits," Redmond said.
Redmond said a previous attempt to increase the scrutiny of not-for-profit deals failed in recent years when it was tacked onto another issue.