HOSPITAL MERGERS: FOR-PROFIT VENTURES GENERATE BACKLASH
A "backlash is brewing" against the recent trend ofThis is part of the California Healthline Daily Edition, a summary of health policy coverage from major news organizations. Sign up for an email subscription.
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.
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"