Unlike perfect marriages, hospital alliances are not always made in heaven.
That seemed to be the case last week for the six-hospital Health Alliance of Greater Cincinnati, which lost a bitter legal battle against three member-hospitals that sought a divorce from their longtime joint-operating agreement, claiming the system breached its fiduciary duties over the course of a nearly 13-year union.
Hamilton County Court of Common Pleas Judge Fred Nelsons ruling came about a week after closing arguments in the long-running dispute between the regions biggest healthcare provider and three rebellious members470-bed Christ Hospital, Cincinnati; 217-bed St. Luke Hospital East, Fort Thomas, Ky.; and 177-bed St. Luke Hospital West, Florence, Ky. The two St. Luke hospitals have already announced their intent to merge with St. Elizabeth Medical Center, which operates two hospitals in Kentucky, while Christ Hospital plans to become independent.
Officials with the alliance, who say the breakup will lead to serious financial repercussions and a potential erosion of the regions safety net, are considering an appeal of the judges ruling. The alliance is not expected to make a decision on the appeal until later this week. If an appeal is filed, it will include a request that the judge order a stay to prevent the breakup during that process.
Gail Myers, a spokeswoman for the alliance, said officials were disappointed with the ruling; we disagree with it.
Mike Keating, Christ Hospitals chairman of the board, made his own appeal last week to the alliances leadership, saying that the Cincinnati community will benefit from an independent hospital with a focus on faith-based care and serving the poor. He called on the alliance to drop its lawsuit and work to transform Christ Hospital to an independent entity as provided for in our operating agreement.
Keating said these types of breakups are commonplace in the industry. In fact, he said, many alliances formed in the past are dissolving or losing members since they have not met the expectations of members. He said an internal study conducted by the alliance found that about 80% of the 39 largest healthcare systems formed in the past 15 yearsthe height of the merger-and-acquisition crazehave either lost member hospitals or dissolved.
Indeed, other hospitals also have exited alliances in recent years (Feb. 19, p. 6).
The healthcare environment has changed dramatically, Keating said. In the late 1990s, hospitals were struggling with their ability to bargain for reimbursements. Today, you have a more level playing field in terms of negotiating for reimbursements. As a result, you dont need these large systems.
Officials with the alliance have said they did nothing wrong, and have argued that a split would cause irreparable harm to the overall system and its role as a safety net provider for the poor and uninsured. Christ Hospital reportedly generates about 40% to 50% of the alliances overall revenue and ranks as its most-profitable facility, one source said.
It could have serious repercussions for
the healthcare in this community, Myers said. Were very concerned about what it could mean.
Three days after the judges decision, Standard & Poors placed its A+ credit rating for the alliance on credit watch with negative implications, noting the ruling would strip the system of its most profitable participant, Christ Hospital. The ratings agency said Christ Hospital represented about 28% of the alliances combined total revenue and 34% of combined excess of revenue over expenses for the fiscal year ended June 30, 2006. In a written statement, the agency concluded that the system would be weaker without Christ Hospital.
In a letter earlier this year to Democratic Ohio state Sen. Eric Kearney, Gloria Haffer, chairwoman of the board of the alliance, outlined the community benefits of a strong alliance, saying the arrangement had saved more than $250 million over its 12-year history by consolidating such areas as human resources and financial services. Last year, she added, the alliance was the largest provider of care to the poor and uninsured in the region, contributing more than $130 million in medical care, community education and other programs.
Ultimately, she wrote, separating these hospitals from the system will mean bidding wars for healthcare workers, driving up costs and straining a system that she said is already reeling from worker shortages in key areas.
The divorce proceedings began in January 2006, when the alliance sued Christ Hospital after it announced its intention to leave the system. Six months later, the two St. Luke hospitals joined the court battle, echoing Christ Hospitals allegations. The alliance followed in March with a lawsuit against Christ Hospital.
But the judge last week overwhelmingly sided with the renegade hospitals, concluding that Christ Hospital manifestly has established its contractual right to terminate its relationship along with the two St. Luke facilities. The judge all but dismissed the alliances position that it formed a virtual merger with its affiliated hospitals. He also said that the plain language contained in the joint operating agreement explicitly grants the boards of participating hospitals the authority and exclusive power to exercise ultimate responsibility for fulfilling their respective charitable missions.