Thinking about closing a service or even an entire hospital?
If you're a private not-for-profit system, watch out for your state attorney general, who may be part of a growing cadre of attorneys general across the country who are challenging closure decisions that were formerly made by boards of trustees without much state review.
Arguably, state attorneys general always have had legal authority over private not-for-profits because they are considered charitable public trusts by the fact that they accept private donations and enjoy state and local tax breaks. But now attorneys general are intervening more in the business decisions of not-for-profit hospitals, spurred by community groups that are rebelling against decisions that threaten to shut down longstanding hospital services or facilities in their area.
"The attorney general is going to be sensitive to the squeaky wheel," said Michael Peregrine, a healthcare lawyer with Gardner, Carton & Douglas in Chicago. Peregrine represents Good Samaritan Health Systems, whose 341-bed Good Samaritan Medical Center is part of two-hospital Intracoastal Health Systems, West Palm Beach, Fla.
Earlier this month, Florida Attorney General Robert Butterworth filed suit against Intracoastal, seeking a court order that would bar the system from shutting down one of its hospitals and consolidating acute-care services at the other. Local community groups Floridians for Healthcare and Friends of St. Mary's-Good Samaritan oppose Intracoastal's plan. In fact, Floridians for Healthcare, along with some hospital donors, have sued Intracoastal in a lawsuit that is pending in Palm Beach County Circuit Court.
This latest challenge follows similar protests over not-for-profit hospital closures by attorneys general in California, New Hampshire and New York.
And, as in Florida, vocal community opposition is a driving force behind these challenges.
For example, public outcry over Catholic Healthcare West's closure of Long Beach (Calif.) Community Medical Center has drawn scrutiny from California Attorney General Bill Lockyer. The state is now examining how CHW handled the charitable assets of that hospital and another it closed in 1999 (Oct. 16, 2000, p. 22).
Attorneys who represent not-for-profit hospitals said this increased second-guessing of decisions by hospital boards could dissuade people from serving as volunteer trustees.
"Who in heaven's name would want to serve as a board member?" Peregrine asked.
But attorneys general say they're just doing their jobs. Because they have the legal authority to oversee charitable trusts in the states, they say the law gives them the right to scrutinize business dealings of not-for-profit hospitals and halt transactions if they don't think deals are in the public's best interest.
"Selling a nonprofit hospital is not like selling a McDonald's franchise; it's not like selling the corner plumbing franchise. It's a charity, so you have to ask some very profound questions," said Michael DeLucia, director of charitable trusts in New Hampshire Attorney General Phil McLaughlin's office.
Faced with growing community opposition, that office in 1998 issued a report that said the only two private not-for-profit hospitals in Manchester, N.H., violated the state's charity laws when they moved to consolidate acute-care services at one of their campuses after their 1994 merger.
That report eventually helped to unravel the 1994 merger between 204-bed Catholic Medical Center and 225-bed Elliot Hospital that created Optima Health. The two officially parted ways June 30, 2000, and now Elliot and Catholic Medical Center again operate as independent competing hospitals.
Florida's Butterworth has a similar goal in the Intracoastal case. He wants to see the system's two acute-care hospitals in West Palm Beach-Good Samaritan and 460-bed St. Mary's Hospital-stay separate.
Butterworth sued Intracoastal Jan. 3 in Palm Beach County Circuit Court, seeking an injunction to prevent the closure of St. Mary's and asking the court to appoint a new board of trustees for the facility (Jan. 8, p. 16). A trial is tentatively scheduled for Feb. 26, although the two sides agreed to a mediation session Feb. 1, said Cecile Dykas, an assistant deputy attorney general in Florida.
The state sued after issuing a scathing report in December that said closing acute-care services at St. Mary's would reduce healthcare services for poor and minority residents (Jan. 1, p. 22).
But Peregrine argues the Florida attorney general doesn't have the authority to take away St. Mary's from Intracoastal to try to keep the hospital open.
"If the attorney general is successful here, that means any not-for-profit could be undermined by the attorney general, who can say, `If we don't like what you did we have the ultimate authority to shut you down,' " Peregrine said.
Intracoastal, which lost $82.3 million in the fiscal year ended June 30, 2000, has proposed eliminating acute-care services at St. Mary's and consolidating them at an expanded Good Samaritan because it's not financially feasible to operate two acute-care hospitals. The St. Mary's campus would be used for ambulatory and nonacute-care services.
Intracoastal countersued the Florida attorney general Jan. 12 in a lawsuit that seeks "to allow the governance of not-for-profit corporations to remain in the boardroom, out of the courtroom, and away from the political arena."
When a court or an attorney general disagrees with a hospital board's decision, it sends the message that trustees can't make decisions to adapt to changing circumstances in healthcare, said John Aerni, a New York lawyer. "You're in a straightjacket," he said.
Aerni formerly represented 30-bed Manhattan Eye, Ear and Throat Hospital, which two years ago was prohibited by a New York Supreme Court judge from selling its hospital campus and exiting the acute-care hospital business. The judge said deals to sell the hospital to another New York hospital for use as a breast cancer facility and to a real estate developer for redevelopment as an apartment building didn't reflect Manhattan Eye's value as a hospital. New York Attorney General Eliot Spitzer opposed the sale, which under state law had to have court approval.