Should Hospital Merger Process Be Changed After St. Joseph Pension Fund Receivership?

Friday, October 13, 2017
GoLocalProv News Team

Governor Gina Raimondo
The collapse of the St. Joseph pension fund has placed the state's Hospital Conversion Act (HCA), and subsequent revisions, under public scrutiny. 

Specifically, in light of the recent pension failure --  does it need to be changed?

“It's worth understanding that the [Hospital Conversion Act] was created to prevent the acquisition of Roger Williams Hospital by a for-profit -- by the Hospital Corporation of American -- around 20 years ago,” said Dr. Michael Fine, the former Director of the Rhode Island Department of Health. 

The act is intended to bifurcate the review responsibility between the Rhode Island Department of Health Director, who is responsible to protect patient care and the Department of Attorney General, whose responsibility "[is] to preserve and protect public and charitable assets in reviewing both hospital conversions which involve for-profit corporations and hospital conversions which include only not-for-profit corporations.”

Years later, when Prospect of California purchased CharterCARE and its associated hospitals including St. Joseph Health Services the transaction went through the state review regulatory under the HCA.

HCA in Focus

Just three years after the Prospect purchase was approved under the HCA, the St. Joseph Health Services pension fund was thrust into receivership and more than 2,800 retirees have been threatened with a 40 percent cut to their pension payments. When the Prospect was purchased approved, the pension fund was left "orphaned" and Kilmartin crowed that the process was a success.

At the time of the agreement in 2014, Kilmartin said, “The transacting parties have worked diligently to provide regulators with the necessary documentation and information throughout this review process to make this decision, a decision I believe is in the best interest of Rhode Island’s healthcare marketplace, the community, the employees, and most importantly, the patients.”

Kilmartin said in his statement, “Conducting a hospital conversion review requires the commitment of a substantial amount of resources for the Office of Attorney General. I commend my staff for the time and careful consideration put into this review process.” 

Now, pending in Rhode Island are a number of potential hospital deals worth hundreds of millions of dollars.

Leaders on Record

Speaker of the House Nick Mattiello
Speaker of the House Nick Mattiello told GoLocal, “As this is a very complex issue, it is premature to determine what changes may or may not be needed in the Hospital Conversion Act.  We are awaiting the findings and analysis being conducted by the receiver of St. Joseph Health Services, and that will help us determine whether or not the law needs modification.” 

But, House Minority Leader and GOP candidate for Governor Patricia Morgan says the law is and always has been flawed. “Clearly, in light of the collapse of the St. Joseph Pension Plan, this law needs to be revisited. I think it would be wise for Attorney General Kilmartin to step aside in any review of either the conversion or the legislation. Too much controversy and doubt exist about the judgment and expertise of his office,” said Morgan.

Governor Gina Raimondo's office voiced that the investigation under the receivership should move forward and then by analyzed. "The Governor is reassured the Saint Joseph's pension collapse is being investigated by the receiver, to determine how the system failed and what needs to be done to prevent such a situation in the future," said David Ortiz, spokesperson for Raimondo.

Receiver Stephen Del Sesto
The receiver in the St. Joseph pension fund collapse, Stephen Del Sesto told GoLocal, "Regarding whether the HCA should be amended, even if it can be said that the HCA process did not contribute to, worsen or cause this pension failure, I believe this situation warrants a review of the Act by the legislature to determine if a change or clarification to the Act (or the enactment of some other law) could prevent this (or a similar circumstance) from happening again in the future; and if so, the change(s) should be made."

Care New England Deal Next Up Under Hospital Conversion

Presently on the table is the proposed deal in which Partners HealthCare of Boston would purchase the much distressed Care New England — the group that owns Women & Infants, Kent Hospital, and Butler Hospital. That deal is in flux as Partners has raised question about the financial viability of CNE. 

CNE has lost tens of million in the past years.  

House Minority Leader Patricia Morgan
“While it is important to ensure that the Care New England hospital group returns to financial health, it is also important to ensure that the best interests of patients, employees and retirees are thoroughly considered and respected,” said Morgan.  

“The General Assembly should review the law and make any changes necessary to secure that goal.  I do not believe that enough study was done before the Hospital Conversion Act was passed to be certain that the new streamlined process contains adequate oversight and protections,” added Morgan.

“The Hospital Conversion Act provides strong and important financial protections. It is premature to assess whether any individual was negligent in their responsibilities. That is why the Senate President has called for an investigation into how a fund that should have been 90 percent funded failed so quickly," said Greg Pare in a statement to GoLocal on behalf of Senate President Dominick Ruggerio and Senate Leader Michael McCaffrey.

“As proceedings unfold in court, President Ruggerio and Majority Leader McCaffrey are pleased that Max Wistow has been named special counsel. They are confident that Mr. Wistow will utilize every legal remedy available to provide relief for the pensioners. Should claims eventually be made in this case, President Ruggerio has filed legislation, to be reviewed this fall by the Senate Judiciary Committee, that may provide an important tool to encourage settlements in the case and achieve the ultimate goal of making the retirees whole,” Pare said in the statement.

Senate President Dominick Ruggerio
However, former Health Director Fine says the Hospital Conversion Act is flawed, not only in protecting business assets, but also in its intended role in protect public health.

"The HCA doesn't give the [Department of] Health Director the powers that she needs to address the delivery system that helps best protect the health and safety of Rhode Islanders," said Fine. 

“It says if we sell a hospital, here are the protections we need to keep the hospital doing what its been doing -- which has little to do with how the act was written 20 years ago,” added Fine.

Flawed Statute, Flawed Healthcare Structure

Fine points out that the statute is outdated and does not address critical issues now facing the hospital industry.

“Would I amend the act? I would totally change it to give the [Department of Health] Director the power to close unnecessary hospitals and make sure the most vulnerable ave access to care in every sort they need.  What people don't understand is that the underserved population does not have adequate access to specialty care. You can't fix that in the HCA,” said Fine.

“Should it be amended?  Yes. Should it be broader than just having to do with transactions of hospitals? Definitely yes. The delivery system has to change. I'm responding as a public health person, but the economic impact has a role in the political process. We're running hospitals with occupancies of like 60% which is hugely inefficient," said Fine.

Dr. Michael Fine
Did Recently Passed Amend to HCA Create More Vulnerabilities?

Another deal now in process is the Prime purchase from CNE is the purchase of Memorial Hospital of Pawtucket. 

“Well, I thought it was a mistake to change [the HCA] in June under the gun to facilitate Prime's purchase of Memorial -- which I haven't heard is complete yet. I don't think changing legislation for the needs of a single for-profit entity is in the best interest of our state,” said Fine.

Morgan raised similar concerns about the end of the session legislation that advocates claimed was required to push through the Prime - Memorial deal. 

“I voted against the Hospital Conversion Act because I had misgivings about it. It appeared at the end of the session and was rushed through without the robust due diligence that I felt a law of this importance and effect deserved.  At the time, the Attorney General signaled that he had no objections to the legislation.  Since it restricted his authority and oversight responsibilities, that puzzled me,” said Morgan.

  • Retirees Get Active

    Scores of frustrated participants in the St. Joseph Health Services of Rhode Island pension plan gathered and picketed outside Providence Superior Court on Wednesday and then protested outside the Offices of the Roman Catholic Diocese of Providence. 

    "Bishop Tobin's silence on this issue speaks volumes about the lengths to which he and Church leaders will go to avoid accepting moral and legal responsibility for the thousands of lives that could be devastated by an unexpected and dramatic reduction in pension benefits," said Lynn Blais, RN, president of UNAP Local 5110 at Our Lady of Fatima Hospital. 

    "Church leaders were warned that the pension fund was in trouble and yet they said nothing. That silence now has the potential to hurt people -- many of whom remain active members in Catholic parishes. The Church's silence has real consequences, and we intend to keep fighting to hold Bishop Tobin and his subordinates accountable."

  • No Role for AG in Receivership

    Judge Brian Stern ended Wednesday’s hearing with a clear message to the Attorney General’s Office — they will not play a role in the receivership.

    Kilmartin, who had a regulatory responsibility under the Hospital Conversion Act, claimed that he represented the interests of the parties and the assets, but just three years and three months after the sale of St. Joseph to Prospect of California, the pension plan which had been orphaned with Kilmartin’s approval was placed in receivership.

    Stern told the court that Kilmartin’s office and any other agency could investigate independently as they see fit.

    Kilmartin continues to refuse to answer questions or sit down for an interview.

    “The receivership is on-going, and as was stated before, our office is in contact with the receiver and monitoring the ongoing process to see where the Office has legal standing to intervene.  As is standard policy, given these set of facts, we have no further comment at this time,” said Kilmartin spokesperson Amy Kemp on August 30 in an email to GoLocal. Kempe has refused three subsequent requests for interviews.

  • Diocese, Roger Williams Medical Center, and Charter Care All Failed to Make Payments

    As GoLocal unveiled on Tuesday, the St. Joseph pension fund was in a dire financial situation going back as early as 2007, according to actuarial documents secured by GoLocal. And, the distress probably started much earlier.

    Moreover, each of the three organizations that controlled the hospital over the decade ignored directives from the actuarial as to the amount needed for contributions to properly fund the pension fund.

    In 2014, during the sale of St. Joseph/CharterCARE, the actuarial identified that the contribution needed to "reach 100% funding level projected to the end of the plan year” was $29,573,536, but CharterCARE's contribution was just $14 million.

    “But, clearly a hospital like St. Joseph that was dealing with financial distress - you clearly know that if not funded properly, the retirees would be impacted adversely,” said Stephen Del Sesto, the receiver for the pension fund.

  • Wistow Gives a Discount, Violet Goes Pro Bono

    The lawyers joining the effort to recoup funds for the St. Joseph pension fund are among Rhode Island's most talented and accomplished.

    Max Wistow of 38 Studios and Station Fire fame has joined the effort of receiver Stephen Del Sesto. 

    For the investigative phase, Wistow and his firm will receive the same hourly rate as receiver Del Sesto of $375 per hour.

    Wistow’s firm will receive 10 percent of any funds recovered prior to litigation and his firm will receive 23 1/3 percent of all funds recovered via litigation. 

    The blended rate is substantially lower than his traditional rate of 33 to 40 percent, and is likely to be lower than the 16 percent he received in recovering over $60 million in the 38 Studios case — Wistow received approximately $11 million.

    Former RI Attorney General Arlene Violet has taken on the cause of representing more than 300 of the oldest retirees. Violet is working pro bono.

Delivered Free Every
Day to Your Inbox