Prime, whose business model is turning around struggling community hospitals, has been under federal investigation for allegations of upcoding and high rates of septicemia at its hospitals, and is embroiled in lawsuits with competitor Kaiser Permanente and the Service Employees International Union, charging them with conspiring to keep it out of the market.
Dr. Prem Reddy, the chain's chairman, president and CEO, said the U.S. Justice Department's investigations to date have not yielded any fines for the chain. “There's no hospital, no health system, that hasn't been investigated and fined,” he said. “At Prime Healthcare, there have been no fines, only investigations.”
Beyond Prime, healthcare dealmakers say there is growing discomfort in some states about new for-profit providers entering their markets. As the financial challenges mount for community hospitals, the number of investor-owned beds is increasing with standalone facilities seeking a deep-pocketed partners. States that previously have been closed to for-profit entrants are reluctantly opening their doors—with conditions.
While state and federal regulators have been active in reviewing hospital mergers, state attorneys general are more likely to impose behavioral or conduct remedies on a deal, while the Federal Trade Commission prefers structural remedies, such as divesting overlapping assets, said Jay Levine, a Washington-based antitrust attorney at law firm Porter Wright. “I suspect that this has been going on for a while, but I assume it will become ever more common.”
The deal for Landmark has taken nearly five years—and three failed agreements with other suitors—to become a reality. In that time, Rhode Island lawmakers amended the state's Hospital Conversion Act to make it easier for investor-owned chains to buy facilities there. The law previously prohibited for-profit groups from buying more than one hospital every three years.
Deal approvals have usually hinged on preserving the same amount of care, said Jim Jenkins, who chairs the healthcare practice at law firm Bass Berry & Sims in Nashville. But as hospitals are moving toward a population health model of care, “it makes a whole lot of sense that you would see transactions that focus on the quality of care provided.”
Another state casting a wary eye on its growing for-profit sector is New Jersey, which has become widely known for its lengthy review process and long list of conditions that buyers must meet. Prime is seeking a larger presence in New Jersey. In May, legislators held a hearing to ask the attorney general to more aggressively oversee not-for-profit hospital conversions.
But Prime isn't the only chain garnering scrutiny, and the trend is bipartisan. In Michigan, which saw for-profit chains enter the state within the past five years, Republican Attorney General Bill Schuette called for an independent third-party monitoring firm to ensure Duke LifePoint abides by the terms of its 2012 deal to acquire Marquette General Hospital. Duke LifePoint is a for-profit joint venture between Duke University Health System and publicly traded LifePoint Hospitals.
Because these regulatory agreements are relatively new, there's little precedent for what happens when chains don't meet the conditions. In Massachusetts, Democratic Attorney General Martha Coakley last January released the first post-acquisition report in connection with Steward Health Care's November 2010 takeover of not-for-profit Caritas Christi Health Care.
The agreement called for the attorney general to monitor Steward's impact on the healthcare market and to ensure that the chain is abiding by any deal terms that protect the public interest. “Our review of Steward's impact in its first year of operations indicates it is striving to meet its stated objective,” Coakley wrote.
Follow Beth Kutscher on Twitter: @MHbkutscher