Mergers and acquisitions put hospital executives on their toes for variety of potential snags, including financial risks, strategic issues and antitrust scrutiny. University of Louisville Hospital is negotiating a different kind of friction as it attempts to combine with two other Kentucky hospitals.
Open and shut case
Hospital deal creates debate over records law
The pending deal brought scrutiny of the Kentucky chapter of the American Civil Liberties Union, creating an unusual debate over whether the hospital should have to turn over information about the agreement under the state's open records law.
It's rare that disputes over open records laws slow or kill deals, although earlier this year, a Florida judge's interpretation of the state's Sunshine law tanked plans between Adventist Health System of Winter Park, Fla., and 112-bed Bert Fish Medical Center, a hospital operated by a public hospital district in New Smyrna Beach, Fla.
The parties agreed to the deal in May 2010, but the hospital's foundation sued to stop it, complaining that the selection of Adventist as a partner was tainted by meetings convened in secret.
The $620 million deal between University Hospital, Jewish Hospital & St. Mary's HealthCare in Louisville and Catholic Health Initiatives' St. Joseph Health System in Lexington, Ky., received federal antitrust clearance earlier this year. The parties still need approval from Kentucky Gov. Steve Beshear, as well as from the Roman Catholic Church.
Last week, the Louisville Metro Board of Health released its findings and recommendations for the deal, saying that without better access to statements, they could not fully determine the financial need for the merger.
Meanwhile, Kentucky Attorney General Jack Conway agreed with the opinion of the ACLU and local media outlets in Louisville: He ruled University Hospital needed to release documents related to the transaction.
University Hospital officials countered with their own lawsuit claiming the hospital as a private entity. The lawsuit serves as an appeal of the Conway's ruling and named Conway, the Kentucky chapter of the ACLU, ABC affiliate WHAS-TV and Gannett Co.'s Courier-Journal newspaper as defendants.
Bill Sharp, attorney for the Kentucky chapter of the ACLU, said the public is entitled to the records sought by ACLU and the local television and newspaper. He said he was not surprised by the appeal and is prepared for a lengthy legal battle: “We will aggressively litigate this case to establish the soundness of the attorney general's decision and we look forward to present these arguments in court.”
In an earlier interview with Modern Healthcare, University Hospital CEO James Taylor said the lawsuit suggests the Courier-Journal was on a “mission” in scrutinizing the deal. He maintains the three hospitals need the additional capital from the merger and won't otherwise be able to continue the same level of services. Opponents also worry about reproductive services that would be banned as a result of the need to abide by Roman Catholic doctrine, although the University of Louisville Hospital has said patients would be able to receive some of those services at a nearby hospital.
In the 1980s, lawmakers in Massachusetts sought to protect public facilities from disclosing sensitive documents by exempting them from the state's open records law, said Steve Weiner, a member of the law firm Mintz Levin in Boston. State hospitals sought the exemption because they were worried about being compelled to reveal information to competitors while vying for survival in an increasingly volatile hospital market.
“Strategic-related documents would be exempt from public disclosure,” Weiner said. “You can't provide all the strategic-planning documents to their competitors.” He said he would advise University of Louisville Hospital to petition for such an exemption if the Kentucky courts agreed with the attorney general's ruling that the hospital should be considered a public institution.
Weiner also noted that the law failed to protect the public hospitals from competition; there aren't any left.
Monte Dube, a partner in the law firm Proskauer Rose in Chicago, called the dispute in Louisville “fairly extraordinary and not likely to be replicated in future deals with other public hospitals.” Whether a hospital is considered a public entity and susceptible to open records laws is generally determined—and should be—before a deal is negotiated.
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