HOSPITAL MERGERS: FOR-PROFIT VENTURES GENERATE BACKLASH

      A "backlash is brewing" against the recent trend of
 nonprofit hospitals developing for-profit affiliations or being
 bought outright by for-profit hospital chains, WALL STREET
 JOURNAL reports.  Even though private chains "have been
 accelerating their takeovers of nonprofit hospitals," a
 conference held this summer by representatives from 30 state
 attorneys general's offices "suggests" that the "pursuit of
 nonprofits is likely to become tougher."  While many of the
 earlier transactions were "nearly invisible," local and state
 officials now "worry that too many of these tax-exempt
 institutions, long regarded as the mainstay of public health
 care, will be gobbled up by the national chains without any
 public scrutiny."  JOURNAL notes that, as a result, deals are
 "increasingly" becoming subject to public review as community
 activists and lawmakers act to "slow the trend or even stop it."
      PUBLIC EYE:  State legislative, judicial and executive
 branches are paying close attention to these nonprofit to for-
 profit transactions.  California enacted a law requiring public
 hearings for any type of nonprofit to for-profit conversions (see
 AHL 10/9).  Massachusetts Attorney General Scott Harshbarger (D)
 recently "extract[ed] concessions" from Columbia/HCA Healthcare
 Corp. during its acquisition of the nonprofit Metro West Health
 Inc.  Columbia has agreed to continue emergency room operations,
 provide charity care and "be accountable to the state for its
 community benefits."  A Michigan court recently "blocked a joint
 venture of a shareholder-owned and a community hospital," JOURNAL
 notes.  Nebraska has a new law which requires financial
 disclosure in nonprofit conversions and takeovers, and an
 "independent valuation process."
      IRS ON YOUR BACK:  JOURNAL notes that the Internal Revenue
 Service is "taking an interest as well" by determining the tax
 implications of all the nonprofit conversions.  The IRS is
 drafting rules for the deals and is preparing for "an intensive
 audit program on health care transactions," according to Marcus
 Owens, director of the IRS' tax-exempt-organizations division. 
 "Consequences could include taxes or penalties on institutions
 and individuals," he said.  However, according to the JOURNAL,
 "[w]hatever restrictions the new public scrutiny may provide, it
 isn't likely to stop the buying binge." 
      MUNCH MUNCH:  For-profits are looking to acquire nonprofits
 for "one basic reason:"  the vast majority of the nation's 700-
 plus for-profit hospitals have already been consolidated into
 networks or acquired by national chains.  The 4,500 nonprofits
 hospitals that remain have "tens of billions of dollars of
 assets" and are "ripe for the picking" by for-profits.  JOURNAL
 notes that the nonprofit hospitals "offer an instant local
 franchise with built-in community trust" and they "represent the
 chains' next bet for earnings growth and nationwide expansion." 
 According to the JOURNAL, some analysts predict that for-profits
 "may ultimately double their current holdings of 14% of all U.S.
 hospitals."
      RISING PRICES:  JOURNAL notes that "at the least" the public
 "scrutiny is apt to drive up prices."  Josh Nemzoff, a merger
 consultant based in Nashville, cites two recent deals, "one done
 quietly and one done with competitive bidding."  In the quiet
 deal, Columbia/HCA purchased Alleghany Regional Hospital in Low
 Moor, VA, for $30 million, while the competitive bidding deal
 cost Community Health Systems $50 million for Elliott White
 Springs Memorial Hospital in Lancaster, SC.  According to the
 JOURNAL, both "hospitals were of similar size, and each had a
 local near-monopoly."  Nemzoff said, "All these new supervisory
 efforts will open up the process and force competitive bidding."
      JOIN TOGETHER:  JOURNAL notes that some of the nonprofits
 that are looking for a "strategic partner" but are "wary of the
 for-profits, are finding each other."  The regional nonprofit
 affiliations are "trying on their own to achieve the same
 efficiencies promised by the big national chains."  Princeton
 University economics professor Uwe Reinhardt said, "They want to
 do it before [Columbia/HCA CEO] Rick Scott makes them"
 (Langley/Sharpe, 10/18).