The Florida attorney general's office won't be fooled again. When Intracoastal Health Systems announced plans to consolidate its two hospitals in West Palm Beach, Fla., it caught the office by surprise. Attorney General Robert Butterworth eventually sued Intracoastal, which was operated by Catholic Healthcare East, Newtown Square, Pa., to force it to put the two hospitals up for sale. Tenet Healthcare Corp., Santa Barbara, Calif., closed on the $244 million purchase last month.
Now, Butterworth's special projects coordinator, John deGroot, monitors as a matter of course the routine financial statements that not-for-profit hospitals file with the Florida Agency for Health Care Administration.
"We like to find out something's on fire ahead of time, rather than waiting for a 911 call that the building is going to be totally destroyed," deGroot said. "(The West Palm Beach consolidation) was a major, major community issue. People were very bitter and angry. It would be better to come in when it is less emotional."
Attorneys general aren't fooling around, especially because the financial side of healthcare has grabbed the public's attention like never before.
Minnesota Attorney General Mike Hatch's audit of Allina Health System, Minneapolis, may be the leading edge of a broader-than-ever effort by attorneys general to hold not-for-profit hospitals and health systems accountable. Hatch's scrutiny and criticism of business practices at Allina and its 1 million-enrollee Medica health plan pressured the system to spin off Medica (July 30, p. 4). Allina acknowledged that Hatch's pressure sped up the announcement.
In the most recent revelation from the 14-month state investigation, Hatch reportedly told Allina's board that Medica spent $56 million on consultants over three years. The consultants coached executives through team-building exercises, such as playing ring toss, and showed movies to teach Medica officials about group dynamics (See editorial, p. 24).
Allina took another step last week to implement the breakup. The system named Chief Financial Officer David Jones to take over day-to-day duties on an interim basis from David Strand, Allina's chief operating officer and once the heir apparent to Chief Executive Officer Gordon Sprenger. Strand is scheduled to leave Allina on Sept. 3. Sprenger, who was going to retire in July, is expected to step aside when the split is completed by the end of the year. The split will leave Allina with 17 hospitals and 47 clinics.
The Allina split is symbolic of more encompassing investigations by attorneys general. Such probes are "a growth area," said James Schwartz, a lawyer who represents not-for-profits, including hospitals, in cases involving their governing boards. Schwartz spent 27 years working in the California attorney general's office, leaving public practice in 1998 to join the Los Angeles office of Manatt, Phelps & Phillips.
State attorneys general base their authority over not-for-profit businesses on not-for-profit corporation laws and charitable trust law, Schwartz said. The corporation laws govern whether a not-for-profit can change its mission from that stated in its articles of incorporation. The charitable trust law, both statutory and case law, defines the state's powers to review business decisions made by not-for-profit businesses in the interest of protecting charitable assets arguably owned by the public.
Schwartz traced the added rigor of attorneys general to the early 1990s, when then-Columbia/HCA Healthcare Corp., now HCA, began its buying binge of not-for-profit hospitals.
Those ownership conversions and their impact on charitable assets heightened awareness of not-for-profit hospitals' business practices, said Michael Peregrine, a healthcare lawyer with Gardner, Carton & Douglas in Chicago.
"(Attorneys general) have a better understanding of the sophistication of not-for-profits and the business deals that they make," Peregrine said. "They're saying, `To preserve assets, we kind of want to have a better handle on their finances.' They're trying to find a way to be better attuned to those situations, so they can avoid having them shut down or reconfigure services."
Attorneys general definitely are taking notice. The opening session of the June meeting of the National Association of Attorneys General was devoted to "emerging trends in healthcare and their impact on the office of the attorney general," according to the agenda.