The recent decision by a Minnesota judge barring greater oversight by the state attorney general of a not-for-profit health plan may make it tougher for attorneys general in other states to do the same, healthcare experts said.
Earlier this month, Hennepin County (Minn.) District Court Judge Mary Steenson DuFresne denied state Attorney General Mike Hatch's attempt to appoint two businessmen to Bloomington, Minn.-based HealthPartners' board, including a move to install Minnesota Timberwolves owner Glen Taylor as board chairman.
The ruling in Hennepin County District Court stipulates that Taylor be appointed instead as a special administrator to HealthPartners and only make recommendations to the board on travel, entertainment, executive compensation, corporate governance and consultants.
After issuing a critical audit detailing what he considered corporate greed at HealthPartners, Hatch asked a state court to appoint Taylor and Ed Flaherty, a commercial real estate developer, to its 15-member board of directors. In his petition to the court, Hatch said the HealthPartners board was "weak and inattentive" and needed new members to address governance failures.
Hatch's request to appoint Flaherty to the board was denied. Flaherty will have no role at HealthPartners.
In her ruling, the judge said HealthPartners had begun taking steps to address Hatch's recommendations, and the court, not Hatch, should retain jurisdiction over the matter during the next 12 months.
The ruling is likely to reverberate through the not-for-profit healthcare industry, experts said. In his petition filed with the court in February, Hatch said Taylor's extensive experience in board governance issues made him the right choice for chairman.
"Not every time an attorney general decides to play hardball with a not-for-profit does it work," said Michael Peregrine, a Chicago lawyer with Gardner, Carton & Douglas who represents not-for-profit hospitals. "It is good news for not-for-profits and it's perceived as a lesson to these activist attorneys general."
The 600,000-member health plan came under fire in January when Hatch released a report charging that a "culture of luxury" existed, where executives spent more than $10,000 a year for Minnesota Vikings season tickets. Hatch also uncovered a $4,500 trip to an oceanfront resort in Miami by former HealthPartners Chief Executive Officer George Halvorson and his wife. No business purpose for the trip was provided.
Hatch audited the health plan because he said it behaved in a manner inconsistent with its not-for-profit mission from 1997 to 2001.
Taylor can attend board meetings and have access to all HealthPartners information. The ruling prohibits Taylor from sharing any proprietary or confidential information with Hatch.
Mary Brainerd, CEO of HealthPartners, said she was pleased with the ruling because "integrity has been maintained."
"Organizations that have a strong case are likely to be able to protect their governance structures," she said.
Peregrine said not-for-profits are not going to sit back and accept the challenges of attorneys general. "You will see not-for-profits thinking that its pays to stand up and fight for your rights," he said. "HealthPartners said this is wrong."
The court order is a setback for Hatch, who successfully broke up Allina Health System and its 1 million-member health plan, Medica, after a 2001 audit in which he uncovered patterns of excessive spending on corporate travel and entertainment. Allina and Medica eventually announced their split, blaming too few Medica enrollees using Allina hospitals to make integration work. Executives acknowledged that Hatch's investigation accelerated the system's decision (July 30, 2001, p. 4).
Medica and Hatch are awaiting a ruling in Hennepin County District Court after Medica petitioned to dismiss a 2001 settlement that allowed Hatch to oversee its board (May 26, p. 14). A judge's ruling is expected by mid-August.