Big news today in Boston. Rob Weisman at the Boston Globe reports that the Caritas Christi hospital system will be acquired by New York private equity firm Cerberus Capital Management in a $830 million deal. A formal state approval process is needed for the transaction to be consummated.
This would be the largest switch of hospital assets from non-profit to for-profit status that the state has seen. Where will the CEO show up on Jim Conway's chart below under the new arrangement? With the new financial resources being provided by Cerberus, Caritas has the potential to make investments in quality and safety that could help propel it to a leadership role in process improvement. That's the kind of competition that Massachusetts needs.
The article notes:
In such cases, the state Supreme Judicial Court reviews findings from the attorney general’s office, which considers such criteria as whether the transaction is in the public interest, whether the nonprofit has received “fair value’’ for its assets, and whether the nonprofit avoided conflict of interest during its decision-making. As part of a conversion to for-profit status, companies are generally required set aside money for the public’s benefit, such as by setting up a foundation.
A thought about this. If a foundation is set up, why not have its proceeds support quality and safety improvement training in medical schools and at hospitals generally in the state, perhaps stewarded by the Massachusetts-based Institute for Healthcare Improvement?
Pardon my admittedly extreme cynicism, but my take on this is that Cerberus, having lost their shirt in the automotive industry, sees health care as the foremost potentially lucrative industry left and this is all about money. The key statement is they agree not to "sell the hospitals or take them public for at least 3 years." Three years is a blink in hospital improvement time, which means most of the improvements will be financial to make it a more attractive takeover target.
ReplyDeleteReference the case of HCA of Dr.Bill Frist fame, which was private, then taken public in a lucrative IPO, then taken private again a few years ago, now is about to issue another IPO. This is nothing more than financial churning - although I do admit there is no evidence patient care was harmed.
Sounds like Caritas did what it had to do, and I hope for the best that it will work out to patients' benefit. But follow the money, as they say.
nonlocal
I didn't follow their acquisition of Chrysler too closely, but is there any evidence that the private equity folks invested in quality improvement there?
ReplyDeleteColor me cynical, but normally the private equity firms slash and burn and cut to make things attractive for their exit strategy. As Dr. Deming said, you have to have long-term thinking for quality, and private equity firms rarely have a real long-term horizon. I *hope* this move could be more than just neutral to patient safety, but we'll have to wait and see.
Mark
I am not in the Boston marekt but I assume Caritas is being sold because it is having financial problems. Otherwise it would remain as it has been. I would be very surprised if any firm such as Cerberus will invest much in the hospital. Most of these firms take as much cash out as possible and then the hospital moves into and cycle of spinoffs to for profits that are further down the food chain. Not a bright future for Caritas.
ReplyDeleteAs far as setting up the funds from the sale to benefit the broader medical community in the state, why? Where were they when Caritas was in trouble? Any proceeds should benefit the immediate community around Caritas.
Why would a Caritas sale be used to benefit IHI, and not the thousands of families who live in the communities where the hospitals are, who have contributed to their very being? Sorry Paul, but you missed on this one.
ReplyDeletePaul, Overall I understand the intent on the part of Caritas to seek this type of investment arm. Conventional wisdom dicatates that any adminstrative personnel who are presently or potentially involved in on-site adminstration of a Caritas-Cerberus facility will ultimately answer to the hand which feeds them.
ReplyDeleteWhat I don't understand is the desire of Cerberus to get involved in a MA based hospital. There has to be some tremendous upside potential for this to have been on Cerberus' radar and have passed their primary due dilligence. If indeed that is the case, why didn't someone else who is familliar with Caritas (& accepting of the requisite Catholic Dogma, scoop them up? Many questions in an environment which already lacks answers.
Dear jdentent,
ReplyDeleteThanks. I was not seeing it as benefiting IHI, but rather all the people of the state. Anyway, that was just one idea. There are probably many other worthwhile ones.
I think that Paul's point about making a quality example by doing something different (i.e. competing) is a good one - perverse financial climates aside. I don't believe that the public, including any definition of the community - are remotely aware of the hazards of walking in a hospital. It may suit the medical engine to leave it that way, but making quality and safety a marketable value benefits vulnerable, underserved local populations as much or more than healthier clientele at the most expensive institutions. Who is more likely to die from a CLI or VAP? For-profits benefit greatly by the efficiency that comes with reduced readmissions and complications. Caritas has some of the key improvement talent in the city, it would be exciting to see such efforts maximized.
ReplyDeleteDoes Caritas (St Elizabeth's specifically) have an arrangement with a medical school (Tufts?), and if so, can someone comment on what that means functionally given the profit/non-profit designations.
ReplyDelete"No money; no mission."
ReplyDeleteToday's article in the Boston Globe puts a little more "flesh" on this story...."more than met the eye"...
ReplyDeleteCerberus is not paying Caritas ONE dime in its agreement. Cerberus promises (1) to maintain the Catholic identity (they won't do abortions or similar procedures- none of which is profitable anyway), (2) to maintain employment levels for 3 years ( a blink of the eye), (3) to assume the liabilities of the pension system (Cerberus is doing all this via an LLC limiting their true exposure) and (4) make a significant capital investment in Caritas facilities.
ReplyDeleteAfter 3 years, Cerberus will look to sell Caritas- this is their business model. At that point Cerberus will seek a return not only on their investment, but also of the resources being GIVEN to them by Caritas.
I believe that there is an obligation for the Mass AG to assure that "fair value" is received for these "charitable assets" when the ownership changes from a non-profit to a for-profit entity. The only way this should be approved by the AG is if the Caritas system has no net worth or a negative net worth.
This is a great deal for Cerberus.
Arch Bishop O'Malley speaks of this agreement as allowing "our hospitals" to continue etc. (see his Blog)