Massachusetts Attorney General Martha Coakley has approved the sale of Caritas Christi Health Care to private equity firm and turnaround specialist Cerberus Capital Management, but with strings attached.
Coakley imposed several conditions on the deal to protect Caritas employees and patients, and to strengthen the state's healthcare market at a time when many hospitals are struggling against a rising tide of growing costs and declining Medicaid payments.
The terms stipulated ensure that the chain of six Catholic community hospitals would stay open for at least five years and fully fund the pensions of some 13,000 employees and retirees. Steward Health Care System LLC, the affiliate of Cerberus Capital Management that is involved in the transaction, also would have to satisfy outstanding Caritas debt and commit to no less than $400 million in capital improvements within four years.
During negotiations, the attorney general's office also got Steward to agree to modify its original agreement with Caritas to:
- Prevent Steward from transferring ownership of any of the six hospitals in the system for three years
- Extend from three to five years the period during which Steward may not close any of the hospitals in the system provided certain financial performance goals are met
- Prevent Steward from cutting the number of inpatient psychiatric and detox beds in any of the hospitals in the system
- Require Steward to cover $45 million in additional liabilities of the pension plan
- Give the attorney general the direct authority to enforce the post-closing commitments Steward makes
The attorney general's office in Massachusetts is involved in any transaction that relates to the transfer of a hospital's charitable assets to a for-profit entity.
In a report that grew out of the investigation, the attorney general noted: "It is impracticable, if not impossible, for Caritas to continue to operate as a public charity. To do so would likely require (i) leaving the pensions of some 13,000 current and former employees substantially underfunded, uninsured, and at risk and (ii) closing at least one of the Caritas Hospitals."
The investigation, report, and finally the decision to go ahead with the transaction were part of a five-month long process that involved public hearings, public comments and reviews of financial records and reports. Caritas' internal data showed a steady decline in utilization that outpaced other hospitals in the state. Between FY2005 and FY2009, total patient days at Caritas fell by 14 percent, compared with 2 percent at Massachusetts hospitals. Outpatient surgery volume fell by nearly 25 percent vs. 7 percent for all hospitals in the state. And by March 2009, Caritas had only 44 days of cash on hand.
For the transaction to advance, the Supreme Judicial Court of the Commonwealth of Massachusetts and Department of Public Health must approve the transaction.
To learn more:
- here's the press release from the attorney general's office
- read the report on the deal from the attorney general's office
- read the Boston Globe's article
- see these Boston Herald articles: article 1 and article 2