Blog | Tuesday, January 12, 2016

Hedge fund to the rescue of charitable care

Tucked away amid the deluge of awful news from California in the wake of a mass shooting was a story about a tentative deal in which a hedge fund (BlueMountain Capital Management) received a green light to manage a chain of non-profit hospitals (Daughters of Charity Health System) that is on the brink of bankruptcy. Said hospitals span the state from San Jose to Los Angeles.

Notable facts about the deal include:
• It'll be the largest transaction involving a non-profit system in California history.
• It'll be the first time a state-level decision governing non-profit hospitals has included a hedge fund.
• The hedge fund is paying $100 million up front for the right to purchase the hospitals within 3 years. (Final costs of which will be many hundreds of millions more.)

California's attorney general had to give her blessing to the deal. She instituted strict conditions to permit the option, which are listed at the bottom of this post. On the plus side, community-serving hospitals stay open, and stay non-profit for a period of years. They are infused with cash which a) keeps them open b) allows capital improvements c) keeps their employees working and d) keeps their pensions funded.

Potential downsides are that the hedge fund has no prior experience managing a hospital system. It will create a spin-off to do the managing. Some community advocates are worried the hedge fund will (years from now) turn the hospitals for-profit, consolidate them, shed employees, and thus hurt the various communities' access to care.

It will be an interesting deal to watch. No one has ever said health care is simple. Or that it's cheap.

From the San Jose Mercury News article:

1. For 10 years, O’Connor Hospital, Saint Louise Hospital and Seton Medical Center and St. Francis Hospital in Los Angeles must operate as acute care hospitals and offer emergency services.
2. For 10 years, Seton Coastside must operate as a skilled nursing facility with 24-hour emergency services and a minimum of 116 licensed skilled nursing beds.
3. For 10 years, the 6 facilities must provide the same types and/or levels of emergency and nonemergency services to Medi-Cal beneficiaries and maintain Medi-Cal managed care contracts at each of the facilities.
4. A sum of $180 million must be invested in capital improvement expenditures at the facilities.
5. Charity care for needy patients and community benefits must be provided at historical levels.
6. All facilities must meet seismic compliance requirements until 2030.

Is this a Faustian bargain or was it the only viable option?

This post by John H. Schumann, MD, FACP, originally appeared at GlassHospital. Dr. Schumann is a general internist. His blog, GlassHospital, seeks to bring transparency to medical practice and to improve the patient experience.