WASHINGTON — A debt-ridden Catholic hospital network in the Archdiocese of Boston is to be sold to a private equity firm for $830 million.
According to reports, Caritas Christi Health Care is to be transformed into a for-profit corporation, while retaining its religious identity.
News of the sale, which still must be approved by state, archdiocesan and Vatican authorities, came within days of the passage of federal health-care legislation. That overhaul earned an enthusiastic endorsement from the Catholic Health Association, an industry lobbying group.
But the jury is still out on whether the bill will actually improve the bottom line for Catholic hospitals experiencing the same difficulties as Caritas Christi.
Catholic hospital executives are still studying the bill and say they are ill-prepared to make any sweeping generalizations about its impact on their services or fiscal picture. When asked to be interviewed for this story, most refused to comment.
The bill includes measures that could stem the tide of red ink for hospital networks that can leverage their numbers to negotiate lower costs, but future reductions in Medicare and Medicaid reimbursements could hit stand-alone inner-city hospitals especially hard. Another bone of contention is tighter restrictions on nonprofits that receive tax exemptions for providing charitable services.
However, Catholic hospital executives also worry about the staying power of President Obama’s executive order banning federal funding of abortion and fret that their institutions could lose patients if that ban is lifted and they find it increasingly difficult to compete in the marketplace.
“It’s hard to predict what will happen. But we think it’s going to have a negative financial impact for us. There’s a great need for health-care reform, but we don’t think this is the answer,” said Sister Jane Marie Klein, chairwoman of the corporate board of St. Francis Health Services, a hospital network that runs more than a dozen hospital campuses.
Sister Jane Marie, a member of the Sisters of St. Francis of Perpetual Adoration, who has worked in health-care administration since 1975, is apprehensive about a future collision between the “Ethical and Religious Directives for Catholic Health Care Services” (issued by the U.S. Conference of Catholic Bishops) that guide practices at Catholic hospitals and a new federal entitlement that is likely to gain increasing influence over the health-care sector.
“The abortion and freedom-of-conscience issues have not been resolved to our satisfaction,” she noted.
‘Important to Be Vigilant’
Ethical concerns aside, Sister Jane Marie is apprehensive about expected reductions in reimbursements for hospital services. Though hospitals are generally viewed as likely beneficiaries of the health bill, which will bring an expected 32 million Americans into the system, the decline in reimbursements could neutralize or even undermine the benefits of treating the surge of new patients — even for large networks like St. Francis.
“One of our major concerns is that in the next few years the baby boomers will be going on Medicare, we will have many more previously uninsured people in the program, and by 2014, the government will start making big cuts,” she said.
St. Anthony Health System, a $100 million system with two campuses in Alton, Ill., will very likely face significant challenges.
St. Anthony’s primarily serves middle- and working-class patients, many of whom have gone without insurance. Mother Regina Pacis, president of St. Anthony Health System, acknowledges that the hospital is groaning under a mountain of “bad debt.”
Though pleased that longtime patients finally will have access to affordable health insurance, Mother Regina, a member of the Sisters of St. Francis of the Martyr St. George, didn’t know what the overhaul meant for St. Anthony’s bottom line. She expressed concern that “tort reform” was left out of the lengthy negotiations on Capitol Hill.
There is just one issue that prompted an immediate response from Mother Regina: “It’s important for us to be vigilant on ethical issues. We always will continue to fulfill God’s plan for the sick and the needy irrespective.”
Catholic Health Association
St. Francis Health Services and St. Anthony Health System are both members of the Catholic Health Association, but neither Sister Jane Marie nor Mother Regina agree with the decision by Sister Carol Keehan, the group’s president and CEO, to endorse the health-reform bill.
“We don’t disagree with everything the CHA is doing, but they are creating confusion regarding the bill’s abortion provisions. On this rare occasion, we stand apart from the CHA,” said Sister Jane Marie, who said that St. Francis Health Services circulated a statement backing the USCCB to board members, employees and the six Catholic bishops in dioceses served by their network.
Sister Carol Keehan, a member of the Daughters of Charity, had expressed intermittent support for health-care reform, but adopted a strong public position only in the final week before the bill’s passage. She was asked to offer her own judgment regarding the bill’s financial impact on Catholic hospitals for this article, but she was traveling and could not be reached for comment.
Her spokesman, Fred Caesar, referred this reporter to a March 21 CHA press release that congratulated “the nation’s leaders for enacting historic health-care reform.” The press release said nothing about the bill’s fiscal impact on CHA’s membership.
In an exchange of e-mails discussing issues related to this article, Caesar suggested that a story about the financial picture for Catholic hospitals “would not be of interest to the general reader. People want to know more about the benefits from the health insurance legislation in regards to new access, elimination of pre-existing conditions, etc.”
Caesar’s comments seem puzzling In light of recent headlines and heated public reaction to the news about the Caritas Christi deal, plus the closing of flagship Catholic hospitals such as St. Vincent’s Hospital in Manhattan, New York City’s last remaining Catholic general hospital that has served the poor for generations.
However, the CHA’s apparent uneasiness with questions about the financial interests of Catholic hospitals comes in the wake of strong criticism regarding its 11th-hour endorsement of the health bill, a move that took the USCCB and pro-life House Democrats by surprise.
On March 16, amid the fevered negotiations between the Democratic leadership and pro-life holdouts in the House, Rep. Marcy Kaptur, D-Ohio, suggested during an interview with reporters that the CHA’s stance might be influenced by financial considerations.
“I think the hospitals have a different perspective because they’re running large institutions,” Kaptur said in a published interview. “They have to balance their budgets and so forth. I think that the bishops are probably in a different position. I don’t think that they’re really managerially responsible for these institutions.”
It was one of the few times that a news story focused on the CHA’s role as a lobbyist representing its membership’s financial interests. When Sister Carol, along with the liberal advocacy group Network, backed the bill, her religious vocation became the focus of media attention: In a New York Times story, one source spoke of the sisters’ “unimpeachable” reputation for serving the needs of the poor.
But Kaptur was only speculating about the reasons behind the CHA’s endorsement, and some of her colleagues in the House contradict the notion that most Catholic hospitals will actually benefit from the overhaul.
“ObamaCare will cut over $36 billion in Medicare and Medicaid funding that goes to hospitals which disproportionately serve the poor,” reported Rep. Chris Smith, R-N.J., who noted additional cuts of $39.7 billion in Medicare reimbursements for home health services, “which are often run by hospitals.”
The leading pro-life congressman in the House, Smith contends that the bill’s conscience provisions are inadequate.
“As now signed into law, the bill only prevents discrimination by a ‘qualified health plan’ on the exchange against providers within the plan,” he said. “The law does nothing to stop discrimination by other entities created or funded by this act, like a federal or state governmental entity. That’s a pretty big loophole in conscience protections.”
Marie Hilliard, director of bioethics and public policy at the National Catholic Bioethics Center, echoed Smith’s concerns.
“If you look at this as a package — and consider the fact that broad powers have been given to the secretary of Health and Human Services — one could see how easily mandates could be written into legislation that could negatively impact the Catholic health-care provider,” said Hilliard, a registered nurse and a canon lawyer.
Wall Street’s Assessment
While pro-life advocates on Capitol Hill and Catholic health-care leaders continue to debate and review the likely impact of the bill, Wall Street is engaged in its own assessment.
In the wake of the news about the $830 million Caritas Christi deal, some Wall Street analysts speculated that the news suggested that the health-care overhaul, by expanding the number of patients who could pay for services, had raised the value of such hospitals. But Caritas Christi operates in Massachusetts, a state that experienced its own overhaul of health insurance with reform legislation passed in 2006, so it’s difficult to assess whether the proposed deal bears much relevance for out-of-state hospital networks. In fact, over the last two years, Caritas Christi has engaged in a rigorous financial turnaround on operating revenues, say health-care experts, but the network still couldn’t make significant inroads on its debt.
The Boston Archdiocese declined comment on the Caritas Christi sale. But Chris Murphy, a spokesman for the hospital network, said it welcomed the deal because “we needed the capital to fully fund the pensions of our employees and retirees, to eliminate our debt, and to get capital that would allow us to invest in the infrastructure of our facilities. We looked at the options — both for-profit and nonprofit — and the best for us was a for-profit acquisition.”
The Caritas Christi board decided to accept the offer from New York-based Cerberus Capital, one of the country’s largest private equity firms, said Murphy, because “they shared our vision for strong, community-based health care, and they shared our commitment to keeping our facilities Catholic. The ‘Ethical and Religious Directives’ are not affected by the sale.”
The news regarding the proposed sale of the hospital network comes less than a year after Caritas Christi was forced to back out of another deal designed to improve its financial picture — a joint insurance venture with the St. Louis-based Centene Corp. The partnership marked Caritas’ proposed entry into the state’s subsidized health program. However, after it was determined that Caritas could not be in full compliance with state insurance guidelines that mandated access to abortion services or referrals for such services, Caritas walked away from a potentially lucrative partnership. The deal would have increased revenues that could have stabilized its financial future.
Hilliard has not studied the new Caritas deal, but she said that it appears to follow a similar strategy employed by some Catholic hospitals that seek to protect their moral legacy even as they lose financial control over their assets. In such cases, the institution is no longer “Catholic” and is reconfigured as a for-profit entity that still complies with the “Ethical and Religious Directives.”
For Catholic hospitals that are losing the fight to secure their own financial health, the Caritas sale may prefigure their own future. Hilliard declined to speculate, but the Caritas story may well possess increasing relevance as Catholic hospitals navigate an uncertain future in the wake of the health-care overhaul.
Joan Frawley Desmond writes from Chevy Chase, Maryland.