Kansas City Healthcare on the For-Profit Auction Block

Comments and Questions On The Sale of Health Midwest Hospitals

 

Prepared by Dennis O'Neill

A NEIGHBORHOOD ACTION GROUP ISSUES REPORT

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INTRODUCTION

 

The proposed sale of Health Midwest's hospitals to the for-profit sector is a major event for the Kansas City metropolitan area. This is not just an event for the community to observe and read about in the newspaper or watch on the evening news. Nor is it just a battle between labor and management. It is an issue effecting a sizable part of the Kansas City metro area.

 

Health Midwest holds over one-third of the hospital healthcare related market. The sale of such a large asset will have major consequences at many levels in the metro area. It has potential to impact the cost of health care, which will have meaning to employers, individuals, insurers, government, and other healthcare institutions. It has potential to impact the quality of healthcare and the accessibility to healthcare. And since Health Midwest is a not-for-profit corporation, the public has every right to become involved when it is selling out to a for-profit stock held company.

 

That's right, the public has every right to be involved. The press and media are now beginning to cover it. However, the news media's focus is narrow and not detailed enough or inclusive enough to be informative on the major issues. With potentially a billion dollars to come from this sale, the major questions of who get the money from the sale and how will it be used have yet to be explored by the news media or the public. Big money has potential for big mistakes and greed. A billion dollar sale needs intense public scrutiny to offset narrow powerful interests. Public involvement is now needed to protect the public benefits established by the hospitals over the years. Health Midwest in a legal sense is just the trustee of this public benefit collectively and currently known as the Health Midwest Hospital system.

 

The following points are initial comments and questions meant to foster public awareness, review and open discussion.

Talking Points:

 

1. The Health Midwest Hospitals. The following 13 hospitals are part of the Health Midwest system:

Allen County Hospital Baptist-Lutheran Medical Center

Cass Medical Center Hedrick Medical Center

Independence Regional Health Center Lafayette Regional Health Center

Lee's Summit Hospital Medical Center of Independence

Menorah Medical Center Overland Park Regional Medical Center

Research Belton Hospital Research Medical Center

Research Psychiatric Center

 

2. The Sale: Is It a Positive or a Negative? The community should not necessarily view the sale immediately as a negative. There may be very sound economic and business reasons for considering this action. Certainly, the public has a right to know in detail why the sale is being considered. If the management of the corporation is not forthcoming, it may be necessary for community and commercial interest groups in the affected area to do independent reviews of Health Midwest's operations, finances and market in order to have a clearer picture of the problems faced by the Health Midwest Corporation. In fact, it may be advisable for the community to have independent reviews even if management is forthcoming. The community has an obligation to know all it can about any potential buyer, for after all, that buyer will be controlling approximately one third of the health care in this metropolitan area. In addition, the community will need to study the proposed foundation(s) that will be created to receive, invest and manage the monies from the sale. These monies by law have to be used for public benefit. A central issue is who will decide the mission of the foundation(s).

 

3. Not-for-profit status. Health Midwest is a not-for-profit corporation that owns hospitals and clinics in the surrounding metropolitan area. Most of these hospitals were merged into the Health Midwest corporation from other non-profit hospitals without direct sale. Religious organizations such as the Baptist and the Lutheran churches founded some of these hospitals, while others were community based. The Attorney General for both Kansas and Missouri will have to review the sale and how the proceeds are going to be used. The public can and must become involved with defining the mission of any foundation or foundations established from the sale. The community has leverage at this point but after a sale the leverage will largely be gone.

 

4. Community Assets. All these hospitals served to the community benefit and as such enjoyed special status under corporate law and tax codes. The community contributed to building the hospitals' assets over time and as such has the right to expect it will play an active role in the decision about selling this aggregated asset. Moreover, the community has every right to expect that it can play an active and decisive role in distributing the assets from the sale of the Health Midwest chain of hospitals. And the community has every right to expect that the monies from the sale go back to the community. When Wesley Hospital in Wichita was sold, a portion of the sale price was given over to the United Methodist Church, the original sponsor of the hospital. The remainder of the price was dedicated to health projects throughout Kansas.

 

5. Founders' Investment. The Health Midwest hospital chain developed largely by merging other not-for-profit hospitals. Thus it is reasonable to ask what rights do the founders of these hospitals have in participating in the proceeds from the sale.

 

"One not-for-profit gives over its control over assets to another not-for-profit to further the combined missions of each. Now we have the mother of all not-for-profits selling the assets; providing liquid assets to chase other missions. In this kind of situation there is a powerful case to be made for insuring that the missions of founders be reconsidered for distribution of the liquid assets so they may continue their charitable works…after all, most or all of them could have sold to a for-profit and gotten cash earlier. They chose the aggregation route. So at this point, dis-aggregation of the cash into multiple missions would be an appropriate remedy unless all possible claimants judge the new mission the right one." (Quoted form personal correspondence with Monty Brown, editor emeritus of the journal Health Management Review)

 

6. Dollar Value of Asset. The question arises as to what is the market value of the Health Midwest hospitals if sold to the for-profit sector? No dollar amount has been stated in the press, but a rough estimate could be a billion dollars or more ($1,000,000,000). The organization or organizations that receive the cash from the sale will be investing the money and in charge of distributing tens of millions of dollars annually. It is reasonable to expect that at current investment returns, the trustees of these proceeds will be distributing annually up to fifty million ($50,000,000) dollars

 

7. Community Interest. The Health Midwest management and the board of directors are not saying publicly what would be done with the money from the sale. The market value of the corporation would have to be given to a non-profit such as a foundation(s). What will be the mission of the foundation or foundations? Who will be on the board of directors? What community groups will benefit from the foundation(s)? Does Health Midwest already have plans for the use of the money? What are they? Do they reflect the community's needs? Does Health Midwest have plans to open up the planning process for broad community input? What local financial institutions will be used to invest the money?

 

The conversion of this non-profit hospital chain should not be allowed to take place without public scrutiny and discussion. Health Midwest has deliberately avoided entering into dialogue with the community on the sale issue and mission of any new foundation(s). Churches who contributed by developing hospitals and turned over their hospitals to be managed by the Health Midwest holding company now may wish to step in to lay claim to part of the monies from the sale. These organizations might have or wishto establish foundations to hold, invest and utilize the sale proceeds for clinics, indigent healthcare and similar needs. A case could be made that the greatest public benefit would flow from multiple foundations rather than one megalithic organization controlling hundreds of millions of dollars.

 

There are a number of community health related programs and organizations that could be potential beneficiaries of foundation(s) established to receive the proceeds. But there is no guarantee the mission of the foundations will on healthcare. Health Midwest has not shown a willingness to discuss this issue.

 

8. Who Pays for the Sale. The community will need to look hard at this issue. How will costs be passed on to consumers, employers, insurance companies, employees and other hospitals and health clinics? Experts should be consulted on this issue as any assessment of the impact of the sale on the community must address the impact it will have on the cost of healthcare in the area. Costs may be made up through reduction in indigent care, reduction in employees, increase in the price of services, closing less profitable hospitals and increase efficiencies ---- to mention just a few. Increased cost to insurers brings increase cost to consumer. There's no free lunch and certainly no free healthcare. The community must address these issues and recruit in experts knowledgeable in the related fields.

 

9. Is the Sale Really Necessary? At some point, the question has to be asked: Is the sale necessary? Did the management of Health Midwest make mistakes? Did the Health Midwest Board do its job in overseeing the corporation? Should management and current board be allowed to be included into managing the foundation(s) formed to receive the monies from the sale? Is current management negotiating "golden parachutes" as part of the sale?

 

10. Ownership Counts. Let the community beware. What difference does it make as to who owns the hospitals? The community served by the hospitals as well as the employees and physicians need to research the background of the different bidders. How have these corporations acted in other buyouts or mergers? What impact have they had on quality care, employee relations, and healthcare costs in other markets? Because Health Midwest controls one-third of the local healthcare market, the new owner can have a major impact on our market. This is not the sale of one hospital but the sale of one-third of our hospital market. The wrong buyer can have a major negative influence to this metropolitan area and literally to every resident.

 

11. Taxes are Costs. Local government would appear to be in a position to benefit from property taxes being paid by a for-profit hospital. Unfortunately, such taxes will be new costs passed on to patients. This is a hidden tax, resulting in increase cost of medical services for patients and insurers. Local governments provide health care coverage for employees, so they will see the tax benefit reduced or eliminated with increased insurance premiums.

 

The following questions are asked as a way of suggesting the scope and range of the discussion that should take place in the community regarding the proposed sale.

 

Questions:

 

1. Is the sale really necessary? At some point, the community has to ask: Is the sale of all these hospitals really necessary? Why is management and the Health Midwest Board seeking to sell the hospitals? Have past management decisions created the need to sell? Did the Health Midwest board of directors adequately oversee the corporation? What market forces might be driving this sale? Is current management negotiating "Golden Parachutes" for themselves as part of the sale agreement?

 

2. What positive things can come from selling a hospital? Could the sale money be funneled to foundations for such things as community health education, disease prevention, nursing and medical education, indigent care, and out reach clinics?

 

3. Who should decide the mission of the foundation(s) receiving the sale monies? Why is Health Midwest handling this issue behind closed doors?

 

4. Isn't the community the primary beneficiary of the sale of a non-profit entity to a profit?

 

5. Why is Health Midwest not considering merging their hospitals or part of them into existing not-for-profit hospitals in the metro area?

 

6. What benefits, if any, could or should flow to the previous owners (e.g. Lutheran and Baptist Churches, local communities) of the hospitals that merged into the Health Midwest chain? Will these community based or religious based groups have any claim to the proceeds?

 

7. When church, community and governmental entities turn over stewardship in assets to another not for profit institution without any payment, isn't there an expectation the assets are ever sold for a profit, that the profits gained from the sale of these community dedicated assets be used by either the original sponsors and/or other similar existing programs in the community?

 

8. What benefits will come from the sale to the current management of Health Midwest? What financial rewards will come to top management? Will they stay on with the new owners? Will there be a timely disclosure of the incentive package for management?

 

9. Why should the metropolitan community be concerned with the proposed sale of the Health Midwest Hospitals to a for-profit corporation? Can community groups play a role in shaping this issue? How can community groups shape this issue to the benefit of the community?

 

10. What is known about the business practices of the prospective buyer (Tenet, HCA and others)? What is their reputation? What changes do they make to the hospitals they buy?

 

11. What is the role for each Attorney General in Kansas and in Missouri regarding the sale of a non-profit corporation? Here is where concerned citizens and community groups may have leverage and impact the sale. What other governmental agencies regulate the sale of a non-profit hospital corporation?

 

12. How can the community be sure a fair market price was set for the sale of the hospitals? And how does the sale price of the hospitals effect future healthcare costs?

 

13. Why should the community organizations and businesses become involved in this issue?

 

14. What is at stake for businesses, employees and individual health plans? What costs are associated with such a sale?

 

15. What will happen to hospital employees after the sale? Are there likely to be reductions in patient care staffing? Will physicians have less influence on care issues?

 

16. Who owns the assets of a non-profit community institution?

 

17. What organization(s) will manage the proceeds? What will be the focus or mission of the organization(s) that is formed to handle the proceeds?

 

18. Is the board of Health Midwest and the foundation separate in all ways from the buyer? How will conflict of interests be handled?

 

19. What benefits will flow to the communities around the different hospitals in the Health Midwest chain? What benefits from the sale will go to these communities.

 

20. Who will be liable for the existing TIF plans (Tax Incremental Financing) associated with Health Midwest? Will these TIF plans be a burden on the foundation(s) formed to receive the sale proceeds? How would this detract from a healthcare mission?

 

21. What parts of the existing Health Midwest Corporation will be continued? And under what auspices?

 

22. Where do members of the current board of Health Midwest live? Are they evenly or equitable distributed through out the service area? Will the board of the non-profit foundation formed to receive the proceeds from the sale, reflect the community? Note: Currently 30 board members live in Kansas while 7 live in Missouri. Will the Attorney General for Missouri see that as a problem? What is the equitable solution for a ratio overlapping the state line?

 

23. Should the mission of the new foundation emphasis disease prevention as opposed to disease treatment approach. Should the biotech initiatives be considered in the mission. Is it wiser to allocate resources to prevent disease rather than allocate resources to treat disease?

 

Contact Information:

(816) 765-1180

dmoneill@att.net

Neighborhood Action Group ( Rev. October 15, 2002------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 

STATEMENT OF COMMUNITY CONCERN REGARDING

THE PROPOSED SALE OF HEALTH MIDWEST TO HCA

 The Board of Directors of the nonprofit health care system Health Midwest has proposed to sell all of its assets (including 13 hospitals in the Kansas City metropolitan area, Kansas City Hospice, Visiting Nurse Services of Health Midwest, and Research Mental Health Services) to HCA, a Nashville-based for-profit health care system. If approved, this 'conversion' would be the largest to ever take place in Missouri or Kansas.

 Health Midwest is THE major 'player' in Kansas City's health care services delivery system. With more than 12,000 employees, not only is Health Midwest one of Kansas City's largest employers, it also controls approximately one-third of the hospital beds in the Kansas City area.

 HCA is the largest for-profit hospital system in this country, owning approximately 181 hospitals and other facilities in more than 20 states. HCA's primary obligation is to make a profit for its stockholders. In 1997 under previous management, HCA was the subject of a massive federal fraud investigation; in 2000 HCA pled guilty to 14 criminal counts and paid the government $840 million. Lingering inquiries and civil lawsuits remain to be resolved from these investigations.

 The potential impact of this sale on the communities and neighborhoods served by Health Midwest and its hospitals - as well as on the health care services-delivery system in the Kansas City area as a whole - are enormous. For example, Health Midwest provides many essential health care services that MUST continue, especially for those persons who are uninsured or underinsured and need comprehensive health (physical, mental health, dental) care services.

 It is more important than ever in this time of health care and social services budget cuts to insure that the 'safety nets' in our communities which provide health care services can continue and will not be 'dumped on' by a new profit driven health care system in our communities. Too, Health Midwest employees must be assured a future which guarantees living wages, adequate benefits, decent working conditions, and a commitment to honor previously negotiated agreements with health care workers and their representatives.

 Built up over decades with tax exemptions, donations, public dollars, and volunteer time, the assets that ARE Health Midwest make it a public trust whose board of directors are its caretakers. Thus, under law, if those assets are sold to a for-profit provider, the sale must take place after diligent and arms-length negotiations, be for a fair market value, and the moneys from the sale be transferred to a foundation that will continue to fulfill the original mission of Health Midwest (and its constituent parts) and focus on the health care needs of the people and communities previously served by Health Midwest.

 THE PUBLIC INTEREST SHOULD NOT BE SACRIFICED TO SERVE CORPORATE SELF-INTEREST. Therefore, we the undersigned, call on the Attorneys General of Missouri and Kansas to protect the communities' interests and do the following:

 1. Conduct a comprehensive and public review of the sale process used by Health Midwest to assure that there was no 'insider trading,' self-dealing, or conflicts of interest and that the sale was negotiated with fairness, objectivity, thoroughness, integrity, and arms-length investigations and negotiations.

 2. Hold public hearings in all communities (cities and neighborhoods) affected by the proposed sale.

 3. Withhold approval of the sale until they can issue public assurances that the sale is in the public interest.

 4. Assure that HCA will make specific, legally enforceable commitments to provide high quality, comprehensive, and affordable health care services in our communities, including maintaining, if not increasing, health care for the indigent population served by its facilities and programs.

 5. Ensure that Health Midwest employees receive living wages, adequate benefits, decent working conditions, and that existing collective bargaining requirements and agreements are honored.

 6. Ensure that full fair market value is paid by HCA for Heath Midwest's assets.

 7. Take an active, public role in creating and monitoring the foundation established by the sale, including establishing legally-binding mechanisms which ensure that the foundation is independent from both Health Midwest and HCA, accountable to the communities it serves and dedicated to serving the health care needs of Kansas City residents, including those of the underinsured and uninsured.

 For more information, please call the Missouri Association for Social Welfare 888-634-2901 or the Kansas Association for the Medically Underserved 785-233-8483.

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"The gag order silenced a public debate about the $1.13 billion sale of nonprofit Health Midwest to for-profit HCA Inc."

As reported in Kansas Star titled

"Judge issues gag order in Health Midwest case in Kansas"

By PAUL WENSKE and JULIUS A. KARASHTo reach Paul Wenske, consumer affairs reporter, call (816) 234-4454 or

send e-mail to pwenske@kcstar.com.

To reach Julius A. Karash, health care reporter, call (816) 234-7728 or

send e-mail to jkarash@kcstar.com.

 

 A Comment from Dennis O'Neill Kansas City Neighborhood Action Group

The public confidence in the process of reviewing the Health Midwest conversion is being seriously undermined by the gag order issued in Kansas. Judge Foster's order is clearly contrary to free speech and to the public's right to know. It is an order that benefits Health Midwest, whose corporate culture has been one of secrecy and manipulation of a the public process. It is that same secrecy that ultimately brought bad decission making and ultimately the failure of the Health Midwest holding company. And now, they are showing success at promoting their cultur of secrecy into to the Kansas Courts. The public will once again loose in the darkness of secrecy.

The Kansas City Star reported in today's paper that the Attorney General of Missouri, while not a party to the Kansas proceedings, is abiding by the Kansas Court order. Attorney General Nixon's cooperation with a gag order that does not apply to him will further erode public confidence.

I venture to say that the consensus of the groups participating in the review process is that the process must be fully public and transparent and that the attorney general must actively seek to keep this process fully public. If that includes appealing court gag orders then we expect those challenges to be filed in higher courts. In the mean time, the Attorney General of Missouri should not be voluntarily cooperating with a Kansas order. It seems fully out of character for the Missouri Attorney General to cooperate with such an order.

The Missouri AG has long been an advocate of conducting the public business in the open. We fully expect that approach to continue.

 

 

A Gag Order means public needs to respond

We learn daily bits and pieces of the Health Midwest failure and their current efforts to control the conversion and proceeds. Failure should not be rewarded with secrecy. Our concern remains that secrecy will result in agreements that would never be made if the public were fully involved and informed. The truth will come out eventually, and bad decisions made in secrecy will ultimately reflect on those trusted with working out a just solution. It is one thing to limit public discussion on certain parts of the negotiation but to gag the whole proceeding is not warranted. As I pointed out in the first email on the Kansas gag order, "The Missouri AG has long been an advocate of conducting the public business in the open". We hope that you will not be further hamstrung by the courts. We assume you will be prepared to argue aggressively against blanket gag orders in Missouri. You continue to have the full support and trust of our group.

Dennis O'Neill

Kansas City Neighborhood Action Group

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Christine Taylor-Butler's statement

From the November 26th Public Hearing held in Independence, MO by The Attorney General of Missouri on the Health Midwest Sale. Full transcript on the AG's web site.

 

 

MS. TAYLOR-BUTLER: My name is Christine Taylor-Butler, and I have the dubious distinction of following Dr. Starks who is the token minority member on the Health Midwest board. I am the token minority member on the Baptist Lutheran Foundation Board. And unlike Dr. Starks, I'm not sure what organization he is working for. It's not the organization that I serve. It is not the organization that my husband who up until August was the only black faculty member to serve on any of the central region family practice programs. He is now resigned and working for a different health care provider.

I was here to talk about process and proceeds, but because of that kind of self-serving presentation at the beginning, I wanted to talk a little bit about diversity. There is a reason why you did not get your question answered. There is none. Health Midwest has an all white board because they like it that way. The only reason why I agreed to serve on the then Trinity Lutheran board was because the person who asked me was honest enough to

tell me that it was just a bunch of white guys and they needed a different perspective. It was the first honest answer my husband and I ever got out of a Health Midwest official in eight years.I want to tell you that I was at the Linwood meeting, and you said that you wanted HCA to provide health care as good as what was being provided by Health Midwest. I want to know, representing the people of Missouri, why you would set your standards that low?

And I object to the Health Midwest board showing the only minority available in the system as a photo -- on a photo -- excuse me -- on a Power Point slide presentation. If you've got the minorities, bring them up, but there is a difference between a slide presentation and the reality that board members who volunteer and employees face every day. So I wanted to tell you a little bit about process before I tell you what I think needs to be done with proceeds.

It's difficult to recruit other minorities because of the oppressive nature of Health Midwest

and the negative reputation that it carries among the general population. This negative perception increased with the closure of Trinity Hospital and the promotion of several high profile executives at the same time as people were losing their jobs.

Minority participation in Health Midwest is often relegated to unpaid board memberships that are few and far between.

The Trinity Foundation board questioned the process when Health Midwest closed the Trinity Hospital. We were told that we were not a consideration when the hospital closed. Many of us heard about it in the newspaper. At an angry follow-up meeting we were told that Health Midwest was not required to tell us in advance. Notification, if given at all, would only be given as a courtesy. We were never offered an opportunity as a foundation to looks for ways to bolster Trinity and keep that hospital open. How can the public expect to be heard when they don't even listen to us?

 

I was asked by the Trinity component of the hospital foundation board to write an interim

mission statement citing community and health care providers as the primary beneficiaries of the fund. It was not clear we would merge with the Baptist board for reasons unrelated to that board, but based on our need to ensure that we had ways to protect those funds such that the community hurt by the Trinity closing would be served.

Now, here's what I wrote. You would have thought after I wrote this that I was identified as a member of al Qaeda. That the focus of the fund distribution will be to benefit the community as defined as the mid-town and downtown communities.

It should be noted that we also include Kansas City, Kansas, because we were drawing a large number of that population because of the closure of Bethany.That the other beneficiary would be health care providers: doctors, nurses, front line staff. As the beneficiary and victim of health care in the Midwest I will not even allow my children to be

treated in a facility until they give these people what they need.

I wrote that in administering funds patients and consumers will be the ultimate beneficiaries through access to affordable, accessible, quality health care and related educational programs. The vehicle for delivery of the health care services will be defined as programs

established at or by Health Midwest, community agencies, community partners.

While Health Midwest programs may be a primary conflict for the distribution of services,

the foundation is not precluded from working with agencies and community partners in the distribution of funds if those projects meet the goals established in part one and are consistent with the mission of Health Midwest. In fact, if done correctly, the foundation can be an effective coverage for bridging the gap left by the closure of the Trinity campus.

Here is the response. A Health Midwest vice president called on behalf of the CEO to insist I hold another meeting several days before Christmas so that I could change the language to include

Health Midwest more prominently. When I declined citing anger among the board members about how Trinity's closing was handled, I was warned. A. You serve at the pleasure of Health Midwest; they can fire you. They can fire all of you, meaning the board, and pick a new board if you don't vote the way they want you to. And three, remember, it's not the foundation's money, it's Health Midwest's money. I reported this to two members of the hospital board and was told -- and I need to say right now these people are friends; I did not view these as threats; they were just telling me what they were up against because they had been in the system longer than I -- one, be careful about antagonizing Health Midwest, they play hard ball. Been there. Just ask my husband about the anonymous complaint called in to the Department of Family Services when he was keeping a lower profile which reported him as an abusive father. The social worker who showed up at our house said she already knew it was malicious because she could verify that our children had been in fact in school and were accounted for by those schools. She then counseled us that she was going to write the report as malicious and asked him who was out to get him.

The second, I was told, Try to be a team player and don't make too much trouble. I am happy to report the foundation board members, the majority, in fact all of the rest of them are white, were overwhelmingly supportive of my interim mission statement.

You need to understand that Health Midwest is not a bad board because they come from Jackson County. They are not a bad board because they are white. That's the worst kind of reverse discrimination you could have. Health Midwest is a bad board because they are bullies who don't understand what health care is all about.

In a subsequent meeting with Health Midwest lawyers to combine the Trinity board with

the Baptist board we were given another opportunity to reconsider our position, naming the patients as the primary beneficiaries of our funds. We were asked to reconsider as that our mission statement was a little too long and that of course the community is implied by our support of Health Midwest.

You are happy to understand attempts to modify the mission statement were rejected by the entire newly formed Baptist Lutheran Foundation Board. You think you are frustrated about getting information. Try getting it from the inside.

Multiply your frustration by 100 and you know how we feel. We get our information from the Kansas City Star.

 

That's where we learned of a new layer of management called the Central Region. Health

Midwest promoted three vice presidents to the title of executive vice president in the same

communication which confirmed that there would be more layoffs of employees caused by the closing of Trinity Lutheran Hospital. Those people were coming to the foundation board asking for grants and loans so they could cover their COBRA payments because they had no job at all.

If you want to know how frustrated it is to get information, let me tell you about getting

information about the sale of Health Midwest. In early 2002 the Trinity Lutheran Foundation Board asked if rumors of possible sale to Tenant were true as reported in the Kansas City Business Journal. We were told that no talks were in progress and that no sale was anticipated.

My suspicions were raised when employees reported that despite budget cuts Baptist Hospital was sprucing up the facility and painting the mail rooms. Rumors began to flourish that a possible sale was imminent despite Health Midwest's denials.

The start of talk for a possible sale were later confirmed in the Kansas City Star. Getting a

pattern here?

 

The foundation asked if the cost of health care in Kansas City would rise if the system were

sold to a for-profit entity. We were told that that had occurred in some markets, but that Health Midwest facilities needed capital improvements that Health Midwest could not afford. We were told that the subsequent cost of health care was not an issue that should concern the foundation boards. We were reminded then of the high labor cost and low

reimbursement rates from the government, insurance companies which lead to problems at Health Midwest. Now I need to tell you, when I was invited to join the board, it was probably because my husband is a functional equivalent of Mr. Rogers.

He's a nice guy. I'm hell on wheels. So I reported with the idea that it really was kind of odd to talk about high labor costs given that Health Midwest's focus seems to be executive salaries and not the people who were actually being seen by patients. In fact, I counseled the CEO, The last time I looked, when patients show up at a building, they are not coming to see the vice presidents. They are coming to see the health care workers.

The foundation asked if there would be significant changes made between the verbal sale

agreement and the final contract. We were told no.

When informed of the sale to HCA to the -- the foundation was told that HCA'scommitment was to keep all hospitals open for five years. I noted on November 18th that the commitment now is three years.

I personally requested assurance about HCA's intended commitment to diversity -- you know, that's my role as the token minority on the board -- as shown by minorities in decision-making roles.

Now, I knew how they play this trick at Hallmark. So I said, Do not include janitors or hourly staff. I really want to know what the commitment is to having diversity in decision-making roles. I was told that would be investigated, but no definitive information was offered.

I noted that the only qualitative data on HCA's slides showed 40 percent of the trainees were minorities. Now, I'm a math major from MIT. I know when you're running an end game, and I know when you're obfuscating. I asked for how many people were in decision-making roles, not trainees.

On the question of indigent care. The question I had was: Was the Medicare and Medicaid

population higher at Trinity and higher at the Northeast Medical Clinic? If you want to see

Trinity's commitment to diversity or Health Midwest's commitment to diversity, ask them about the procedure they used to close the Northeast Medical Clinic.

One of the doctors supporting that clinic was my husband. The two doctors supporting that

clinic were informed that they could not get support to keep that clinic open, however the Trinity Foundation had expressed support for providing nursing care.

When the Health Midwest administration was informed that both doctors were going to make a presentation to the Trinity Foundation Board for a nurse and a portable ultrasound so that they could treat maternity patients, Health Midwest turned around and closed the facility. There was no public comment. There was a petition going on in the neighborhood. The doctors were not included in that meeting. In fact, there were no minorities in that

meeting at all, nor any people in the community being served.

HCA said that they would provide indigent health care that would equal the indigent health

care provided by Health Midwest in the last 12 months, but there is a problem. If you look outside of that 12-month window, that's when Health Midwest started closing all of the facilities that were providing all of the indigent care. So you need to insist that HCA goes back and looks at the indigent care as provided by Health Midwest at its peak.

Because although this is a rumor, I probably do agree with this rumor, there is a feeling that the methodology involved in closing certain hospitals had everything to do with hoping those indigent people would find their way to Truman Medical Center.

My proposal. There are people out there who are treating this $800 million like a lottery.

There were a lot of people who showed up at the Linwood meeting who were putting their dibs on those dollars. I want to know where those people were when we were in the trenches trying to keep the hospitals open. I want to know where those people were when the nurses were communicating that they didn't have enough staff support. I want to know where those people were when we were trying to get more minorities in decision-making positions. I think that if we were talking about $25 you wouldn't have as many people showing up.

I want to say there are good people serving on the board that happen to have the dubious

distinction of having a Johnson County address with some of the board members. They are not bad people. In fact, a lot of the money that got pumped into these hospitals and pumped into these foundations, millions of dollars, came from people who didn't have the right skin color and didn't have the right address.

Being from the other side of the state isn't an issue. Because we all know, especially if

you live in mid town -- I live a block and a half from 39th and Troost -- that there isn't a real

State Line. I have one daughter who was born in Missouri, another one born in Kansas City, Kansas, because I did pay attention to the fact that KU Medical Center happened to be one toe over the State Line. So those lines are blurred.

And we need to get past this nitpicking and talk about what is best for the people, but the

one thing that we can agree on is that Health Midwest is generally held in poor regard, that there is no reason to recreate the wheel by creating yet another entity controlled by people who really don't care about you in the first place. Why reward a group of individuals commonly thought to be the cause of the problem with an $800 million foundation that gives them credibility they don't enjoy now?

Existing foundations are already in place with articles of incorporation, mission statements

and attorney staff, and I know you know they all want to be independent. There is a reason. We can't do what we need to do. We can't do what we want to do when what we get back from the system is bullying.

 

My husband left because he couldn't take it anymore. I'm not leaving. I think the money

should be divided among existing foundations, but I was unaware that Independence was going to go away.

So I really do agree with the idea of the Truman Heartland Foundation. I think foundations have already proven they have got a commitment to ensuring the dollars are spent in a way that benefits the patients in the community. And I'm telling you, ethnic diversity will improve once the foundations are separated from the stigma and the pressure of Health Midwest.

The existing structure satisfies the requirements of local and state government by keeping a portion of the dollars in the community served by those hospitals. And I think they should

be expanded in the same way that Trinity wants to expand to incorporate parts of Kansas City, Kansas, to include places like Raytown where hospitals were closed. Because those assets fell back into the general Health Midwest system, and believe me, we did not forget you. The foundation boards are not the Health Midwest board.

I guess I'm telling you -- you expressed a lot of frustration at the last meeting. I was told

that I shouldn't antagonize Health Midwest because they play hard ball. You've seen their brand of hard ball. I've seen their brand of hard ball. If you throw it at me again, the next person I will inform is him, not my family attorney. I'm not fooled by Health Midwest. Don't you be fooled by Health Midwest. But I have a request. I did give Tony some of my notes, they are extreme of consciousness. The things that I said at this podium can be part of the public record, but I have shared with you additional details that are deeply personal about Health Midwest's behavior towards my husband and my family. And that is private communication between me and your staff. Thank you, ATTORNEY GENERAL NIXON: Thank you very much

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We are a group of consumers and organizations that are collectively presenting this letter to Attorney General Jeremiah W. Nixon expressing our concerns regarding the covenants included in the Asset Purchase Agreement for the proposed acquisition of Health Midwest.

Missouri Association for Social Welfare

Contact: Dianna Moore, Executive Director

Nurses United

Contacts: Chere Chaney

Julie Ginther

Community Catalyst, Inc.

Boston, Massachusetts

Contacts: Carl Patten

Nomita Ganguly

The Kansas City Neighborhood Action Group

Contacts: Dennis O'Neill

Carl Esping

Concerned Clergy Coalition*

Contact: Bishop Mark Tolbert, President

*The Concerned Clergy Coalition endorses this document but Concerned Clergy Coalition's endorsement of this document does not constitute Concerned Clergy Coalition joining any other coalition or group nor does it restrict the Concerned Clergy Coalition from pursuing other remedies or avenues for relief.

Black Agenda Group

Contact: Reverend Nelson Thompson

Southern Christian Leadership Conference of Greater Kansas City

Contact: Reverend Nelson Thomps

January 7, 2003

The Honorable Jeremiah W. Nixon

Missouri Attorney General's Office

Supreme Court Building

207 W. High St.

P.O. Box 899

Jefferson City, MO 65102

 

Re: Proposed Acquisition of Health Midwest by HCA, Inc.

 

Dear Attorney General Nixon:

We are a group of consumers and organizations concerned about the sale of Health Midwest to HCA. We have been monitoring the progress of the transaction since August and have analyzed the available transactional documents. In particular, we have carefully studied the Asset Purchase Agreement and have numerous questions and concerns regarding the proposed covenants contained in the agreement. We are troubled that these covenants may be the basis for allowing the conversion to be approved as they do not adequately protect the interests of the community and leave access to health care vulnerable. We send our comments and recommendations in order for you to consider and investigate these issues more thoroughly on behalf of the community.

We take these covenants as they appear in the Asset Purchase Agreement and include our comments as well as documents we believe are needed to understand the covenants clearly. Please note that we reserve the right to supplement our comments as new information becomes available on the proposed sale.

 

1. Capital Improvements

Health Midwest And HCA Must Provide Details On Allocation Of Funding Toward Capital Improvements And Ensure Fairness In Distributing Those Funds.

In the Asset Purchase Agreement, Section 5.1 contains HCA's commitment to provide $450 million in capital improvements to the Health Midwest hospitals in the next five years. HCA will spend $300 million in the first two years, and $50 million each subsequent year for three years. If in any period more funding is spent than has been allocated in the covenant, this will be credited from subsequent amounts.

In order to successfully analyze whether this commitment to provide funding will benefit the hospitals and the communities they serve, it is essential to understand why this amount has been chosen, what the plan is for making improvements, and whether this is new funding for the projects or will be a drain on Health Midwest monies.

Beyond providing the total dollar amount to be spent, there is no detail in the covenant as to where the funding will be allocated and for what improvements. To properly assess whether this covenant will benefit the community and improve access to quality health care, Health Midwest and HCA must provide details on capital improvements to be done, including (1) how much of the $450 million will be allocated to Missouri and Kansas; and (2) how the funding will be divided amongst the hospitals. It is critical that the capital expenditures be fairly distributed according to the need in the community and the physical condition of each hospital. We ask, therefore, for any and all documents reflecting the planning done by the parties in order to arrive at the total expenditure amount of $450 million, including any Health Midwest capital planning documents.

Also, Health Midwest and HCA must be required to state explicitly if the $450 million is new funding that will come from HCA directly or if it is money that will be taken from the current Health Midwest system to pay for these new capital improvements.

It is important to note that the proposed capital improvement expenditures, if they exceed a certain amount, must also go through the Certificate of Need approval process with the Department of Health and Senior Services Sec. 197.305 RSMo.

. Thus, there are certainly numerous steps and a significant lack of information that make this covenant incomplete.

In addition, section 5.15, which addresses remedies, states that if HCA does not make the $450 million in capital expenditures within a reasonable amount of time after the five years have passed, then the shortfall will be paid to Health Midwest. Because the capital expenditures are considered part of the purchase price, we strongly believe that any shortfall should be paid to the charitable foundation or foundations that result from this transaction, not to Health Midwest or its successor. It is also troubling that there are no details and no obligation for Health Midwest to then allocate this funding toward capital improvements in the former Health Midwest hospitals.

Moreover, as currently drafted, section 5.15 gives Health Midwest the authority to oversee the Agreement. We do not believe Health Midwest is the proper enforcement authority (see section 5.15 below), and believe that it could easily fail to enforce the commitment for capital improvements since it stands to gain from HCA's failure to meet the requirements of this covenant. As discussed below, we believe the Department of Health and Senior Services and the Attorney General are more appropriate entities to oversee HCA's commitments.

2. Continued Operation of Facilities

The Asset Purchase Agreement Does Not Adequately Guarantee Accessibility To Alternate Facilities To Those Affected By The Consolidation Or Closure Of Hospitals.

Section 5.2 contains a three-year moratorium on closing any of the Health Midwest Hospitals after the completion of the transaction. HCA, however, can close a Hospital or Hospitals in connection with the opening of a replacement hospital or its consolidation into an existing hospital within three years of the transaction closing date if it meets each of the following three conditions:

 

• the services at the replacement or consolidated hospital are the same as, or substantially similar to, the services provided at the Hospital;

• the replacement or consolidated hospital is located within an eight (8) mile radius of the Hospital; and

• in the event of consolidation into an existing Hospital, the existing Hospital is improved and/or expanded as needed to handle the expected transfer of medical staff, patients and operations from the closed Hospital.

This provision is problematic for various reasons. First, the length of the moratorium on hospital closures is too short. Elsewhere, for-profit hospital acquirers have committed to maintaining hospitals for longer periods. For example, in the recent acquisition of nonprofit Memorial Hospital of Salem County ("MHSC") in New Jersey by for-profit Community Health Systems ("CHS"), the New Jersey Department of Health and Senior Services required CHS to agree to "operate the Hospital as a general hospital at least for a period of ten years." Appendix 1at p. 8.

In light of this agreement, and of the complex health care needs of those served by the Health Midwest hospitals, we believe that the length of the moratorium on closing any of the hospitals should be extended to 5 years.

Second, the conditions under which HCA can bypass the moratorium do not adequately preserve patient accessibility to hospital care if a facility closes. Although the first condition requires the replacement facility to provide the same, or substantially similar, services as the Hospital or Hospitals being replaced, there is no definition of the phrase "substantially similar." The lack of clarity provides potential cracks through which patients with limited resources and limited options will fall.

As an added measure of protection for patients, in the event of a replacement or consolidation, the resulting location should be required to provide the same level of charity care as previously provided by all of the replaced or closed facilities before the replacement or consolidation. For example, if hospitals A and B are consolidated into a third existing hospital (C), hospital (C) should be required to provide charity care equivalent to that provided by hospitals (A) and (B) before the consolidation.

In addition, the second condition does not adequately guarantee geographical access to potentially affected patients. Although eight miles may seem, at first glance, to be a minimal distance, this could present a barrier to access for some. In particular, medically underserved patients are typically more dependent upon public transportation or other parties to get to a hospital. In such cases, location can be just as important as distance. Thus, the Agreement should require more than a guarantee of a relocation site within an eight-mile radius of the former site. For instance, HCA must be required to ensure that the new site is accessible via public transportation or some other type of transportation that is frequently utilized by medically underserved patients.

Furthermore, the example provided in the covenant to clarify the geographic criteria suggests that it is possible, in the case where two Hospitals are consolidated into a third facility, that the new site could be beyond an eight-mile radius of one of the former sites. The example reads as follows:

Hospital (A) and Hospital (B) may be closed by Buyer if a new replacement hospital (C) is constructed, staffed and opened by Buyer to provide substantially the same services as those offered in Hospital (A) and Hospital (B). Hospital (C) is located no further than either eight (8) miles for Hospital (A) or eight (8) miles from Hospital (B). (emphasis added) Asset Purchase Agreement, Section 5.2, page 31.

In this example, the new hospital could be within an eight-mile radius of Hospital (A) but outside of an eight-mile radius of Hospital (B). This type of relocation creates a distinct and formidable barrier to the patients of Hospital (B). Thus, whatever relocation criteria are included in the final version of the Agreement, it should apply equally to all hospitals that will be replaced as a result of a consolidation.

The third condition of Section 5.2 should more explicitly protect accessibility of services by medically underserved patients affected by a relocation or consolidation. This provision should require HCA to guarantee that this be one of the goals of any expansion undertaken in response to consolidation into an existing facility.

Third, the decision to relocate or consolidate a hospital should not be left solely in the hands of HCA. Rather, an independent party, such as the Missouri Department of Health and Senior Services ("DHSS"), should review the merits of a proposed relocation or consolidation. The community board, established in covenant 5.8, should also play an integral part in the closure and relocation decisions.

First, it is the duty of the DHSS "to safeguard the health of the people in the state and all its subdivisions." Sec. 192.020 RSMo.

Second, the DHSS must issue a certificate of need when an entity proposes to develop or offer a new institutional health service. Sec. 197.315(1) RSMo.

Thus, in the event of a relocation or consolidation, the requirement of a new certificate of need is almost unequivocal. A "new institutional health service" includes: capital expenditures above $600,000; expenditures for major medical equipment above $400,000; predevelopment activities beyond $150,000; changes in capacity that result in increases of the total number of beds by more than ten or more or more than ten percent of total bed capacity, whichever is less, over a two year period; the offering of new health services which were not offered on a regular basis in the facility within the twelve-month period prior to the time such services would be offered; and a reallocation of licensed beds from on site to another by more than ten beds or more than ten percent of total licensed bed capacity, whichever is less, over a two-year period. Sec. 197.305(10) RSMo.

The DHSS is already required to review a certificate of need application and hold public hearings about any such relocation or consolidation. Sec. 197.330 RSMo.

Given the duties of the DHHS during its review process, it should incorporate criteria analyzing the continuing accessibility of services for medically underserved persons in making its decision to issue a certificate of need.

 

3. Substantial Reduction or Change in Services

HCA's Covenant Regarding A Substantial Reduction or Change in Services Does Not Provide Adequate Protection For The Communities Served By The Health Midwest Hospitals.

Pursuant to section 5.2 of the Asset Purchase Agreement, HCA has agreed &endash; for three years &endash; to refrain from eliminating or materially changing a "substantial service, program or type or level of care" offered at a Health Midwest hospital at the time of the closing. The parties define a "substantial" service or program as one that accounts for 20% of the net revenue of the hospital in the six months prior to the closing of the service. The Agreement defines a "substantial change in character or purpose" as including a change in the purpose of a specialty facility (e.g. change from psychiatric to rehabilitation) or a significant change in the level of care (e.g. from tertiary to general acute; from general acute to outpatient). Although these examples define by example a change in purpose or level of care, there are no definitions provided for "service" or "program."

In order to understand the implications of this covenant, it is imperative to review data on the services currently provided by each Health Midwest hospital. Specifically, we request that Health Midwest provide a copy of the most recent Medicare Cost Report for each hospital. We also request that Health Midwest provide an electronic version of the most recent Uniform Hospital Discharge Abstracts that will include data on inpatient services provided by zip code and payor. Finally, we request the data that each Health Midwest hospital submits to the Department of Health and Senior Services pursuant to 19 CSR 10-33 et seq. for the period 1998-2001.

Document requests aside, it is critical to note that residents of communities throughout the Greater Kansas City Metropolitan area, as well as those in rural areas, are highly dependent on the health care services provided by Health Midwest hospitals. It is our view that this covenant fails to adequately protect access to health care services for these residents.

First, it is unclear from any documents we have seen which health care services would generate 20% or more of net revenues such that they are subject to this covenant. That said, many services that are essential to the community being served do not generate 20% of net revenues. For instance, if one lives in a community with a high rate of kidney disease, a renal dialysis unit which serves an at-risk population is essential even though it accounts for little of the hospital's revenue. This standard could arguably override the covenants contained in section 5.2 not to close Baptist Lutheran Medical Center or Research Medical Center. Research Medical Center has a kidney transplant unit, which was started with funds from the Jewish Heritage Foundation. Also, Baptist Lutheran Medical Center's Adult Care Unit serves a significant population of senior citizens.

Rather than view "substantial" services through the lens of the amount of revenue generated, HCA should commit to maintaining certain essential services, defined after obtaining input from the community, for a definitive period of time. Although the services may differ from hospital to hospital, at a minimum, HCA should commit to maintaining for at least five years, the following services: obstetrical services; gynecological; pediatric; gerontology; hematology; oncology; surgery; neurology; and cardiology.

We are concerned by HCA's unlimited discretion to discontinue services that do not constitute a "substantial service." This provision permits HCA to discontinue essential health care services at its whim with no public notice, no public process, no criteria for making the decision, and no requirement for creating an alternative plan to maintain access to the service.

In other hospital conversions around the country, for-profit buyers have agreed to maintain certain medical services for an extended period of time and to seek prior administrative agency approval in order to discontinue a service. For instance, in the sale of Memorial Hospital of Salem County to CHS, CHS agreed to:

operate the Hospital as a general hospital at least for a period of 10 years and . . . . continue all clinical programs currently offered by the Hospital. Any change in this commitment involving a reduction or elimination of clinical services offered by the Hospital shall require prior approval from the Department of Health and Senior Services and shall be subject to all applicable statutory and regulatory requirements. Appendix 1 at p. 8.

In addition, in the 1998 purchase by for-profit Tenet Healthcare Corporation ("Tenet") of another for-profit, Columbia/HCA Healthcare Corporation's 80% share in MetroWest Medical Center in Massachusetts, Tenet promised to engage in a public process in the event that it proposed to discontinue an essential health care service. In that case, it committed to:

notify the public, at least forty-five (45) days in advance of the proposed closure of Essential Services at either . . . Campus. The Local Boards [made up of residents of the primary service area] will establish a process for providing public notice and comment, including the use of local newspaper advertisements and soliciting written comments from the public. For purposes of this Agreement, "Essential Services" are defined as: (a) medical/surgical services; (b) obstetrical services; (c) 24-hour physician-covered emergency services; or (d) radiology and laboratory services as necessary to support such emergency services. Appendix 2 at p. 16.

Finally, in the recent sale of Logan General Hospital (West Virginia) to LifePoint Hospitals, Inc., LifePoint promised to continue for fifteen years:

to provide those essential services as provided at Closing, including emergency room services, inpatient and outpatient acute surgical care, intensive care, and obstetrical care ("Essential Services")… After a period of at least five (5) years following Closing, [LifePoint] may elect to discontinue any Essential Service … if the [hospital] experiences any of the following events: (i) an economic downturn; (ii) an adverse change in reimbursement; (iii) an adverse change in governmental regulation; (iv) a reduction in patient census; or (v) an increase in patient acuity, in each case as determined by [Lifepoint] in its sole discretion. Appendix 3 at p. 3-4

LifePoint must consult with the Hospital Advisory Board &endash; which includes at least 40% community representatives &endash; in the event it proposes to eliminate an "Essential Service."

Given the health care needs of Kansas City residents and conditions imposed on other transactions involving for-profit health systems, it is appropriate that the Asset Purchase Agreement contain effective provisions to address any potential elimination of essential services. The responsibility to oversee such a change, however, is best placed in the hands of an independent authority, such as the DHSS, given its mission and expertise. In the event that HCA proposes to discontinue an essential health care service, it is important that DHSS hold public hearings to solicit the views of community residents who depend on those services. HCA also should be required to utilize the community boards cited in section 5.8 as part of the public review process of continuing services.

4. Emergency Room

HCA's Commitment to Maintaining Emergency Department Services Is Insufficient to Meet the Needs of Residents Served By Health Midwest Hospitals.

In section 5.4 of the Asset Purchase Agreement, HCA commits to continuing emergency department services for five years following closing of the transaction.

We are concerned, first, that five years is too short a period to permit adequate access to emergency services. Elsewhere, for-profit buyers of nonprofit hospitals have committed to maintaining such services for longer periods. For instance, in the 1998 purchase of Queen of Angels Hospital (Los Angeles, CA) by Tenet, Tenet agreed to keep the emergency room open for six years and provide services, minimally, at 90% of the level provided at the time of the sale.

Second, although the covenant states that it "will continue to apply to the emergency department of any replacement of consolidated hospital contemplated by Section 5.2" of the Asset Purchase Agreement, we request clarity on the issue of how this covenant operates in connection with section 5.3 which guarantees the continuation of "substantial services" for only three years.

Finally, we reiterate our request for a copy of most recent Medicare Cost Report for each Health Midwest hospital, which will provide data on emergency department visits, in order to better understand the implications of this covenant.

 

5. Charity, Indigent and Uncompensated Care

Any Commitment From HCA To Provide Charity Care Must Be Measured In Cost, Not Charges, And Must Be At A Level That Properly Serves The Needs of the Community.

The Asset Purchase Agreement proposes that HCA will continue to provide for ten years the same aggregate level of charity, indigent and uncompensated care as Health Midwest. Maintaining an adequate level of charity care by this hospital system is crucial to the communities that receive services at the hospitals. In considering the adequacy of the Asset Purchase Agreement, it is essential to fully understand the impact on the accessibility of charity care.

The review of this issue is further complicated by the fact that Health Midwest is such a large system, which provides charity care in numerous communities. Therefore, it is essential to consider all aspects of this issue carefully to ensure that there is adequate access to health care services for all individuals and families who are unable to afford them.

The Asset Purchase Agreement states in section 5.5 that HCA "…. will annually provide at least the same aggregate dollar amount of charity, indigent, and other uncompensated care as were provided by the Hospitals, in the aggregate, for the 12-month period prior to closing." Asset Purchase Agreement, Section 5.5, page 31.

For the Attorney General and the public to clearly understand the implications of this level of charity care there is a great deal more information that is needed.

The agreement does not clearly define "charity care", "indigent care" or "uncompensated care", which makes it impossible to understand what type of care the agreement is describing. Charity care is care provided by a hospital for which it does not expect to be paid. Appendix 4 at 2.

Bad debt reflects care that hospitals provide for which they expect payment, but never receive it. Id. at 5.

The term "uncompensated care" typically describes services that hospitals provide for which they do not receive full payment and is often used as an umbrella term to describe both charity care and bad debt. Id.

Although these categories are lumped together for purposes of this covenant, for the patient, they have very different meanings. When a patient qualifies for charity care, s/he is not billed. On the other hand, a patient is typically billed repeatedly and/or referred to a collections agency before a hospital writes off a bill as "bad debt." It is important for Health Midwest and HCA to clarify these definitions in order to understand the true intent of HCA's commitment. In doing so, they must clearly establish that they will not be including bad debt as part of its charity care calculation.

The commitment to provide charity care in the Asset Purchase Agreement is for a period of ten years. Although ten years is a significant amount of time, hospitals in other states that have converted to for-profit status have made commitments that exceed this amount. In the 1996 purchase of the St. Vincent hospital system in Massachusetts, the for-profit buyer, OrNda, committed to continue the nonprofit's charity care policy indefinitely. In another example, when Universal Health Services ("UHS") purchased Northwest Texas Hospital in 1996, UHS committed to continue to provide charity care for the following 25 years. These examples illustrate that there is an established practice for nonprofit hospitals to continue to provide charity care services to the community for many years after they become for-profit.

In addition to understanding what HCA and Health Midwest are counting as charity care and uncompensated care, Health Midwest must provide the details of its charity care policies at each hospital. As filed, the Agreement does not specify what the charity care policies are that will be continued at the hospitals. For the public and the Attorney General to adequately assess whether these policies will serve the needs of the community, Health Midwest must provide the actual policies. Only then will the community have a full understanding of the meaning of this commitment.

The covenant also states that the measure of charity care will be based on the last 12-month period. Without further information it is impossible to understand what level of care Health Midwest has been providing in the last 12 months. When these numbers are produced to the Attorney General, and made public, the amount of charity care must be analyzed to determine whether Health Midwest has been providing an adequate amount of charity care to meet the needs of the community and whether this is the proper amount for HCA to continue to provide. Without this information there is no context for this covenant.

In addition, the covenant states that HCA will provide the same level of care that is being provided by Health Midwest in the aggregate. Because there are limited details provided on the exact levels of care, it is unclear whether HCA will be able to shift between hospitals where charity care and uncompensated care are provided since there is no commitment to maintain the same level of care at each hospital. Without a clear commitment that each hospital will continue to provide at least the same amount of care, this covenant is limited in its effectiveness.

The Asset Purchase Agreement further explains that the levels of charity care that they will maintain "….is based upon gross charges foregone as recorded in the records of Seller prior to Closing …." Asset Purchase Agreement, Section 5.5, page 31

Gross charges &endash; the full list price of all hospital services --is not the best way to measure the level of charity care provided by a hospital. Rather, calculating charity care in terms of cost, i.e. the actual amount of money a hospital spends to provide services, is more accurate. Calculating charity care according to charges allows HCA to potentially inflate charges on the charity care, thereby reducing the actual amount of care it is providing. To ensure that consumers maintain access to charity care and that proper accounting is maintained, we recommend that HCA provide the same level of charity care based on the current cost to Health Midwest hospitals and that it be calculated based at the departmental level of each hospital.

 

6. Medicare and Medicaid

HCA's Commitment to Continuing To Participate in Medicare and Medicaid Does Not Provide Added Benefit to the Communities Served by Health Midwest Hospitals.

Section 5.6 of the Asset Purchase Agreement provides that for ten years, HCA will continue to participate in Medicare and Medicaid and provide services to the beneficiaries of these programs "in accordance with substantially the same policies and procedures" followed by Health Midwest.

In order to better understand this commitment, we would like to see the policies and procedures currently in place at the Health Midwest hospitals.

That said, the ten-year "commitment" to participate in Medicare and Medicaid programs is not much of a commitment for several reasons. First, hospitals which would refuse to take Medicare and Medicaid patients would lose a significant revenue resource (as well as result in public outcry). Second, Research Medical Center, Independence Regional Health Center, Trinity Lutheran Hospital, Menorah Medical Center, and Allen Hospital each received Hill-Burton Act funds, and therefore, they and their successors (e.g., Baptist Lutheran Medical Center) have an obligation to participate in perpetuity in the Medicaid and Medicare programs.

5.8 Community Boards

The Powers Of The Community Boards Do Not Adequately Represent The Interests Of The Community.

The powers allocated to community boards in Section 5.8 of the Asset Purchase Agreement do not allow the communities served by Health Midwest hospitals to adequately participate in the operation of the hospitals. Under the Agreement, community boards will have the authority to "(a) establish, modify and amend the medical staff bylaws, rules and regulations [of the hospitals]; and (b) make all decisions, after receiving recommendations from the medical staff executive committee, regarding medical staff membership and clinical privileges." Asset Purchase Agreement, Section 5.8, page 32.

Furthermore, "[HCA] will consult with each Hospital's community board regarding Hospital operations, services and programs offered, capital expenditures, strategic planning, and other business matters." Id.

The authority of the community boards, as enumerated in the covenant, focuses on the governance of the medical staff. We assume that "medical staff" in the second line of Section 5.8 modifies both rules and regulations in addition to bylaws.

Although this is a very integral task in the operation of any hospital, and one rightly allocated to community boards, these boards also should play an active role in other important decision making of the hospital and not be merely consulted about such matters. More specifically, each community board should play an active role in shaping the overall mission of its hospital, participating in major decisions of the hospital and actively evaluating any proposals to reduce services or consolidate with a new or existing facility.

Agreements in other transactions between for-profit buyers and nonprofit sellers of hospitals have established an active role for community boards beyond what is allowed in this Agreement. Again, the transaction between Memorial Hospital of Salem County and CHS serves as an example. In that transaction, the agreement required forming a local Board of Trustees. In addition to oversight of the medical staff, and other responsibilities, the Board of Trustees also had the following duties:

 

• adopting a vision, mission and values statement;

• participating in development and review of operating and capital budgets and facility planning (Buyer reserving ultimate authority for budgets and

planning);

• participating in the selection and evaluation of the CEO of the Hospital;

• approval of any significant change in clinical services; and

• approval of any change of the Hospital's name Appendix 1at p. 4.

This list of responsibilities in the CHS/MHSC transaction clearly provides the local board with more responsibility and substantive involvement in more major decisions than the responsibilities assigned to community boards in this transaction. We urge that the Health Midwest Asset Purchase Agreement be amended to enhance the responsibilities currently allocated to the community boards, and include the responsibilities and substantive involvement listed above.

The Composition Of The Community Boards Do Not Adequately Represent The Interests Of The Community.

The proposed composition of the community boards of the hospitals does not provide adequate representation of the communities served by the Health Midwest hospitals. The pertinent language of Section 5.8 reads, "Each Hospital's community board shall consist primarily of non-physician and physician members of the communities served by the applicable Hospital and shall be representative of the racial and ethnic diversity of the applicable community." Asset Purchase Agreement, Section 5.8, page 32.

First, all board members should be residents of the community that the hospital serves. This requirement ensures that those who participate in the decision-making process of each hospital have a genuine stake in the community. Again the transaction between CHS and MHSC in New Jersey provides precedent. In its Certificate of Need Letter approving the transaction, the New Jersey Department of Health and Senior Services required the for-profit purchaser to "appoint a Board for the Hospital consisting of Salem County residents." Appendix 1 at p. 9.

Community-based representatives must represent the interests of all members of the community being served, including those of medically underserved populations. Although certain gender, racial and ethnic groups may make up a large component of medically underserved populations, the board must consist of members that represent all of those who are medically underserved. Thus, the Agreement must cast a wider net with respect to the enumeration of community interests represented on community boards that includes representatives of low-income populations, among others. Again the transaction between CHS and MHSC provides precedent. The New Jersey Department of Health and Senior Services required that the local board "be structured to provide for ongoing representation from the low-income community." Id.

In addition, in the sale of Logan General Hospital to LifePoint, LifePoint agreed to maintain 40% consumer representation, exclusive of physicians, on the hospital advisory board. Appendix 3 at p. 5.

Given the examples of New Jersey and West Virginia, the Agreement in this transaction should focus primarily on including consumer representatives on the community boards from a range of groups who represent the whole population of the hospital service communities, including the medically underserved and racial and ethnic communities. Furthermore, employee representation on the community boards should be required as employees are also part of the Kansas City community. Currently, the Agreement is silent about what proportion of each board will consist of community-based members. We recommend that, not unlike the precedent from West Virginia, at least 40% of each community board should consist of consumer representatives, including individuals who are served by the hospitals.

5.12 Diversity Commitment

HCA Should Commit To Provide Cultural Competency And Diversity Standards Beyond Health Midwest's Current Levels.

Section 5.12 of the Asset Purchase Agreement, continues HCA's current diversity commitments of Health Midwest with no pledge to go beyond what is currently practiced. In order to understand the impact of this covenant, specific information on HCA's current diversity policies and practices must be provided to the Attorney General and made available to the public. In addition, this covenant should include requirements to maintain or increase cultural competency standards in service delivery and operations by reviewing national standards and utilizing local expertise.

These standards are essential for the community and have been included in Agreements in other conversion transactions. For instance, in the purchase of MetroWest Hospital in Massachusetts by Tenet, Tenet committed to numerous cultural competency requirements including: actively recruiting bilingual and bi-cultural staff at the hospital campuses; agreeing to make available trained interpreters in the three major languages spoken in the hospital service area; agreeing to determine through a comprehensive needs assessment what constitutes a sufficient number of trained interpreters; and, agreeing to monitor the quality of its interpreter services through patient satisfaction surveys.

In order to adequately assess the actual commitment to diversity by HCA and Health Midwest much more information must be made available. The unique and growing health care needs of Kansas City's diverse populations are well recognized and documented, and, therefore, HCA's commitments on this subject must be spelled out more clearly.

• City of Kansas City, MO, Mayor's Minority Health Improvement Task Force, Minority Health Improvement Plan, Initial Strategies and Recommendations, April, 2001.

• City of Kansas City, MO, "Is it Good for the Children?", Minority Health Indicators, Kansas City Health Department, 2000.

• Greater Kansas City Ford-UAW Factbook, Greater Kansas City Area Health Care Initiative.

• "Perceptions of Service Providers Working with Special Populations of Children with Special Health Care Needs in Kansas City, Missouri", A Community Integrated Services System Technical Assistance Initiative, Children's Benefit Services for Families, December, 2001.

Furthermore, HCA's "diversity commitments" and cultural competency standards should be expanded under the review and approval by the various community boards.

5.13 Other Commitments

In Section 5.13(b), HCA commits to implementing new safety initiatives and new medical technologies "as soon as reasonably practicable." Thus, there is neither a specific time frame nor plan for acquiring these "benefits".

A final problem with the Covenant's definition of "substantial" is that it focuses primarily on the presence or absence of a particular service, as opposed to the quality of the service provided. Quality in health care is not just a subjective concept; independent studies have documented that the presence of particular factors, such as the patient/nurse ratios, are directly related to positive outcomes for patients. This can be particularly true in urban core areas, where factors associated with low-income, such as poor nutrition, either lead to or aggravate existing health problems, so that patients arrive at the hospital sicker than they might otherwise be.

For this reason, a "substantial" reduction or change in service must clearly encompass a substantial change in the patient/nurse ratio at any of the system's hospitals. Underlying the patient/nurse ratio, and subsequent quality of care nurses can provide is the number of nurses employed and staffed within a hospital as well as the quality and nature of the interaction between nurses and their employer. Newly published studies released by the Journal of the American Medical Association (JAMA), The New England Journal of Medicine, the Joint Accreditation Commission of Health Care Organizations (JCAHO), and Solucient confirm the risks to patients of overburdening nurses. According to the JAMA study, changing the patient-to-nurse ratio to 8 patients per nurse from 4 would result in about a 31% increase in mortality. California law regarding this issue could be used as an example.

Accordingly, it is critical that HCA recognize the existing nurses union, Nurses United / AFT Healthcare, at the three hospitals where it is certified, without any conditions. In addition, HCA should promptly begin bargaining in an expedited good faith fashion to resolve outstanding issues of staffing, nurse retention and compensation with any agreement reached including guarantees for improved nurse-to-patient ratios written into the contract. Finally, HCA should agree on an orderly process for nurses in non-union hospitals to exercise their right to organize and join Nurses United in the future if they so choose, without employer interference of any type.

Requiring recognition is not a drastic step. HCA has made clear that it intends to employ all or almost all of the nursing staff currently working at Health Midwest facilities, including those facilities at which the existing nurses union has been certified as the exclusive bargaining representative. Under theses circumstances, Federal law requires HCA to recognize and bargain with the nurses' union.

5.15 Remedies

An Independent Regulatory Body Should Be Responsible for the Enforcement Of The Asset Purchase Agreement, Not Health Midwest.

Section 5.15 of the covenants allows Health Midwest to oversee and enforce the Asset Purchase Agreement following the closing of the transaction. It is unclear how Health Midwest, as a party to the transaction, will be objective in its oversight of this agreement. A better arrangement would be to require that the Department of Health and Senior Services and the Attorney General oversee compliance with the commitments included in the Asset Purchase Agreement. A regulator is already in a position to conduct such oversight and is a more independent party than Health Midwest.

5.16 Subsequent Sale

Health Midwest Does Not Provide Adequate Protection For the Community In the Event Of A Future Sale.

The language in section 5.16 does not adequately protect the community in the event of a future sale of the hospital system. As written, the covenant states that HCA will insure that all the covenants are honored in the event of another sale of a covered asset. However, the language should provide that any subsequent purchaser shall assume and be responsible for all obligations and covenants within the Agreement.

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As you can see, we have carefully analyzed the proposed agreement and have substantial concerns regarding the covenants. Although we are pleased there are commitments addressing charity care and establishing community boards, we are concerned that the proposed covenants will do little to protect the community's access to health care. We are hopeful that you will consider our comments on the covenants as you continue to conduct a thorough review of this transaction. Please do not hesitate to contact Dianna Moore, Executive Director of the Missouri Association for Social Welfare with questions regarding the contents of this letter.