For-profit hospital companies often agree to fund foundations in communities where they buy hospitals in recognition that charitable assets should stay in the community. Last week, the nation's largest Roman Catholic system ripped a page out of the for-profits' playbook, possibly signaling a new trend in healthcare mergers.
Two faith-based healthcare giants in Nashville, Tenn., Baptist Hospital System and Saint Thomas Health Services, announced plans to tie the knot last week. The deal would be structured as a sale of Baptist and its three hospitals, including 545-bed Baptist Hospital in Nashville, to Saint Thomas' Roman Catholic parent, Ascension Health, St. Louis. A single company would be created to oversee the system's five hospitals, and a new board would be created.
As part of the deal, Ascension has agreed to place the proceeds of the sale into a charitable trust to support initiatives related to Baptist's Christian mission that will be governed by Baptist's trustees. The systems have not released financial terms of the deal.
Several healthcare tax attorneys said a growing number of not-for-profits are offering to fund such trusts as part of acquisition deals. In one instance, 191-bed Highland Park (Ill.) Hospital endowed a
$100 million community foundation when it agreed to merge into two-hospital Evanston (Ill.) Northwestern Healthcare in 1999. Though not a legal requirement, these arrangements allow the selling hospital to keep some money local and tied to its charitable mission.
In this case, Ascension has agreed to use the foundation to fund "The New Healing Hospital" initiative to be headed by Baptist President and Chief Executive Officer Erie Chapman. No less than 75% of the interest on an undisclosed amount of principal generated by the foundation would go toward that initiative, while the remaining 25% could be distributed by trustees to other activities. The foundation is also likely to be used to administer women's reproductive services that the Baptist hospitals will no longer provide as part of a Roman Catholic system, officials said.
"You're going to begin to see some not-for-profits that are being acquired asking for the creation of an endowment to serve the community," said T.J. Sullivan, a healthcare tax lawyer with Gardner, Carton & Douglas in Washington and a former IRS official.
The two systems expect to merge by the end of the year. Thomas Beeman, the president and CEO of Saint Thomas Health Services, would serve as president and CEO of the new system, to be called Saint Thomas Baptist Healthcare System. Chapman would manage Baptist Hospital and oversee the foundation. The deal would bring together a total of five hospitals.
In addition to its Nashville flagship, Baptist owns 52-bed Baptist DeKalb Hospital in Smithville, Tenn., and 55-bed Baptist Hickman Community Hospital in Centerville, Tenn. It shares 50-50 ownership in 184-bed Middle Tennessee Medical Center in Murfreesboro, Tenn., with Saint Thomas.
The systems tried to merge before in a failed 1997 effort that resulted in the resignations of both systems' CEOs.
Baptist's financial picture has improved since the last round of talks. In fiscal 1999, the Baptist system lost $34.6 million on $414.8 million of revenue. During the year ended June 30, 2000, it lost $4.8 million on net operating revenue of $425.9 million, but its operations were profitable.
Other Nashville players are watching the drama unfold. HCA-The Healthcare Co., which was said to have sent a proposal to Baptist, would not comment on any potential deal. But Vanderbilt University Medical Center, the area's other significant provider, was miffed that Baptist did not accept its offer.
"We're disappointed," said Vanderbilt spokesman Joel Lee. "The leadership here thought a Baptist-Vanderbilt partnership would have been a very strong partnership. We put our best foot forward and it was not as good a foot as Saint Thomas put forward."