Late News: Enforcement problem

A judge in Kansas City slapped HCA with a $162 million judgment last week for violating commitments to fix up distressed hospitals and provide indigent care. The community foundation's three-year legal battle to enforce the agreement highlights the difficulties in such arrangements.

For-profit hospital companies and insurers are often required to form independent foundations when they buy out not-for-profit organizations, under the reasoning that tax-advantaged community assets like hospitals and health plans ought to continue to benefit their local donors.

But in practice, the agreements have proven challenging to police, said Jill Horwitz, a professor at UCLA School of Law in Los Angeles. “They're tough to enforce because you need to have information and attention to enforce them,” she said. “You need bodies in the (state attorney general's) office that have the time and inclination to enforce.”

The Health Care Foundation of Greater Kansas City, which was formed as a condition of the acquisition, was in the somewhat unusual situation of being a private entity in charge of enforcing the agreement. It wound up spending what its CEO Steve Roling called a “sizeable” amount of money to fight HCA in court since 2009.

When HCA offered to buy the 11 hospitals owned by Health Midwest in 2002 for an estimated $1.25 billion, the company agreed to spend at least $500 million over the coming decade on charity care, and $450 million on capital investments to the system's existing hospitals, according to a legal analysis of the agreement rendered by Judge John Torrence of the 16th Circuit Court of Jackson County, Mo.

HCA officials, including then-Chairman and CEO Jack Bovender Jr., testified that the investor-owned hospital company lived up to its agreements by building two new hospitals and showing that the hospitals had provided as much indigent care overall as Health Midwest had before the purchase—at least $65 million a year.

Torrence disagreed, ruling in a 141-page decision Jan. 24 that HCA officials' testimony was not credible.

The judge found that HCA had spent at least $162 million less on capital spending on existing hospitals than it had promised, ordering the company to pay the foundation that amount of money.

Torrence also ruled that it was not clear whether HCA had improperly included marked-up retail prices and uncollectible debt when it computed how much free care it had provided, ordering a court-supervised accounting to examine HCA records. Any shortfall could increase the damages in the ruling.

HCA officials have vowed to appeal. “We believe we have complied with our agreement, exceeded our promises, and we continue to spend millions for the benefit of a community we love,” a company spokeswoman said in a statement.

Susan Sherry, deputy director with healthcare consumer advocacy group Community Catalyst in Boston, applauded the Kansas City foundation for battling the nation's largest for-profit hospital chain in court, which she acknowledged is a difficult task.

“I'm sure it is, but that is exactly what they should be doing,” Sherry said. “They are clearly fulfilling their mission and their obligation. Their job is to stand up for that public good and for the commitments made to the public.”

But Horwitz said the long-term value of such commitments is not totally clear.

Not-for-profit organizations are required by law to adapt to communities' changing needs over time, including closing hospitals when market demands change.

“Nonprofits have an obligation to advance their charitable mission over time and in response to changing circumstances, and that obligation cannot be easily reproduced by a contract,” she said. The outcome in the Kansas City case “should make people wary of signing these long-term contracts and assuming that we can decide in advance what will be in the best interest of healthcare communities 10 years out.”