Two upstate New York hospitals won the first round in a legal fight to keep the court from scrutinizing their proposed deal, but state Attorney General Eliot Spitzer said he will appeal.
The case is the latest test of a state attorney general's authority to review the business decisions of private not-for-profit hospitals (Jan. 29, p. 22).
State Supreme Court Judge Robert Best, sitting in Johnstown, recently ruled in favor of 125-bed Nathan Littauer Hospital and Nursing Home in Gloversville and 143-bed St. Mary's Hospital, in nearby Amsterdam, granting their request for a summary judgment against Spitzer. The hospitals said they want to affiliate-not merge-under a newly created common parent company.
Best said state statute doesn't call for the court's or attorney general's review of the kind of affiliations laid out by the two hospitals. In addition, the statute "is silent" about deals in which a nonsectarian hospital wants to affiliate with a church-sponsored hospital, Best said. Matters of hospital incorporation lie solely in the province of the state Department of Health, not the attorney general, he added.
The attorney general filed a notice of appeal on March 26. Although he has nine months to build a case, he "intends to file an appeal as quickly as possible," said Paul Larrabee, a spokesman for Spitzer.
Officials at either hospital could not be reached for comment.
"We thought it was an appropriate ruling and are obviously pleased," said Monica Mahaffey, a spokeswoman for the Healthcare Association of New York State in Albany, which filed a friend-of-the-court brief in support of the hospitals.
Despite the hospitals' protests to the contrary, Spitzer characterized the proposed affiliation as a merger. He advised the hospitals that the state's not-for-profit corporation law calls for judicial review of hospital mergers even though he said he had no problems with the affiliation in principle.
The two hospitals balked, arguing that the arrangement, which has been in the works for more than three years, would merely create a common "passive" parent company called TriCounty Health. They insist that under the arrangement, which is similar to a joint operating agreement, the hospitals would maintain their historic ownership status and assets. And they sued the state last fall to prove their point (Oct. 9, 2000, p. 16).
In a brief filed with the court, Spitzer argued that under the agreement, Nathan Littauer would in reality lose its assets and control to an out-of-state parent company, Carondelet Health System in St. Louis, which already controls St. Mary's. The hospitals see it as a "mere change in membership of Littauer, as though Carondelet were a new member joining a museum or civic association," Spitzer said.
The case has some similarities to one in Poughkeepsie, N.Y., where the town's only two hospitals melded operations in a similar arrangement eight years ago. In that case, the state attorney general's office said the hospitals weren't truly merged but were using their joint company to illegally fix prices. Last year, a federal judge agreed with the state, and the hospitals were ordered to dissolve their joint operating company (April 17, 2000, p. 3).