Like an explorer setting sail for uncharted territory, W. Hudson Connery Jr., the founder of start-up hospital company Essent Healthcare, would like his company to become the first owner of a for-profit hospital in the state of Connecticut.
But the voyage from Essent's Nashville headquarters to this Northeastern bastion of not-for-profit healthcare has been a stormy one.
So far, Essent has forged through the gale winds of controversy surrounding its proposed purchase of 78-bed Sharon (Conn.) Hospital. But the deal has been questioned every step of the way, in what could be a warning beacon to other for-profit companies contemplating setting sail on similar adventures in states traditionally unwelcoming to for-profits.
Earlier this month, Essent received "approval" of its proposed purchase from Raymond Gorman, commissioner of Connecticut's Office of Health Care Access. The state attorney general also must approve the sale and conversion of the hospital before it can go through. But the commissioner clearly was not thrilled with what was put before him.
"There are serious and numerous concerns about the submission of contradictory and inconsistent information and the skill of Essent in effectively managing healthcare facilities," Gorman said in a written statement. "I will only approve the proposal with very specific modifications and legally binding stipulations to the applicant's proposal."
Essent offered to buy the state's smallest hospital for $16.4 million and has promised to invest $8 million in renovations, which would allow the hospital to eliminate its debt and stem ongoing losses. Essent owns two other hospitals, 82-bed Crossroads Regional Hospital in Wentzville, Mo., and 129-bed Hale Hospital in Haverhill, Mass.
"The immediate infusion of capital to address these weaknesses in the hospital's physical plant and to retire the hospital's debt is the only redeeming aspect of Essent's application," Gorman said in his Oct. 17 statement.
In addition, Gorman tacked on a list of 17 modifications to Essent's purchase agreement and will agree to the sale only if Essent agrees to comply with them (See box, this page).
"This has been the most complex and convoluted process that we've ever had to go through here," Gorman told Modern Healthcare. "It's been quite taxing on the resources of the staff and the agency."
He estimated his office has paid roughly $400,000 in salary costs for staff devoting their energies just to the Sharon sale.
Connecticut Attorney General Richard Blumenthal, who said he will soon release his analysis of the proposal, said Essent may bear an additional burden because it presents a new challenge to the state.
"To be the first always means answering questions that haven't been addressed before," he said. "So certainly we need to travel uncharted waters, but at the same time the factual and legal issues are fairly clear-cut and straightforward, and as part of our conclusions we may suggest ways to improve the system."
Both he and Gorman said they may propose amendments to the state's conversion laws as a result of the Sharon Hospital deal, which has been in limbo since July 2000, when Essent first announced its deal with the hospital's board.
The modifications Gorman proposed are not minor ones.
For example, Essent had proposed as part of the deal to affiliate Sharon with 504-bed Saint Francis Hospital and Medical Center, a Roman Catholic hospital in Hartford, Conn. But members of the community have raised questions about whether that affiliation would hinder access to certain reproductive and end-of-life services that are banned by the Catholic Church but are legal in Connecticut. Gorman raised the additional issue that the affiliation has the potential to drastically change referral patterns. One of his modifications would nullify the agreement with Saint Francis unless Essent first contracts with another tertiary hospital that provides all services that are legal and clinically available in Connecticut.
"I'm not going to hand over the keys to a 100-year-old hospital to some company that I don't have a high degree of confidence in," Gorman said. "I think this is a fair compromise to put in stipulations that protect the public."
Other for-profit companies have had to deal with similar initial skepticism in different states. There was only one for-profit hospital in Pennsylvania when Tenet Healthcare Corp., Santa Barbara, Calif., bought eight Philadelphia-area hospitals out of bankruptcy from the Allegheny Health, Education and Research Foundation for $345 million in 1998. Although Tenet was not the first for-profit in the state, it did have to prove itself in the community, said Harry Anderson, a Tenet spokesman.
"There was a lot of doubt among people in the industry about whether it could be done or whether it should be done," he said. "We looked at it as a challenge, and we also looked at it as an opportunity to demonstrate what we could do as a system."
Connery said he was able to sway public opinion in his favor during Essent's acquisition of Hale Hospital because other for-profit companies, such as Tenet, had paved the way in Massachusetts by performing well with hospitals they bought.
Connery would not comment directly on the state-proposed changes, which Essent has until Nov. 1 to consider. But he did say he expected heightened state scrutiny from the get-go.
"At this point in time, there have been close to 21,000 pages of documents sent (by Essent) to the Office of Health Care Access and the attorney general," he said. "We have certainly endeavored to respond to many of the questions in a diligent fashion and in a good-faith fashion."
When asked whether he would do it over again if given the chance, Connery paused.
"It's just difficult to say," he said. "I think everyone has learned about the process. I don't think some people anticipated it would take this long. I think a lot of people are learning things a little bit on the fly."