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Legal snags kill Community-Eskenazi hospital merger

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Community Health Network and Eskenazi Health quietly called off their engagement months ago, when they found out federal laws effectively prohibited their marriage.

Now they’re trying to figure out how to just be friends.

Leaders of the two Indianapolis-based hospital systems are holding out hope they still may be able to join together, but doing so would require Congress to change federal tax laws—and getting anything passed in Congress these days is extremely difficult.

 Gutwein“What we initially conceived we now know is legally not possible. We regret that,” said Matthew Gutwein, CEO of the Health & Hospital Corporation of Marion County, the governmental agency that is the parent of Eskenazi Health.

The two hospital systems announced in February 2013 a joint operating partnership that would create a joint board to form common strategies, pricing and clinical collaborations. They staged a splashy press conference at City Market, with public officials in attendance.

Their plan would have created a primary care behemoth here, with more front doors to access health care than any other hospital system in the area. That would have put Community and Eskenazi in a position to scoop up customers newly insured under Obamacare.

 MillsBut in late September, Community CEO Bryan Mills called off the deal so the two organizations could focus on the changes coming from Obamacare and so Eskenazi could focus on completing its new 315-bed hospital, which opened in December.

“It’s still hard to admit we couldn’t find a way to do this,” said Mills, during a discussion with Gutwein and Dr. Lisa Harris, Eskenazi’s CEO, on the top floor of Eskenazi’s executive offices, which overlook the campus of the Indiana University School of Medicine downtown.

The plan ran into two legal problems. First, federal antitrust laws require that two competing organizations be joined before they start discussing sensitive things like pricing and strategy.

Second, the rules for the special bonds Eskenazi sold to finance its $754 million hospital require that the recipient of proceeds be separate from any private organizations. The bonds were part of the Build America section of President Obama’s 2009 stimulus package, and offered lower interest rates for publicly funded projects.

Gutwein, Mills and Harris all said they were aware of those legal obstacles when they announced their working agreement in February 2013. But they thought they could find a structure that would thread the needle between those two laws.

In mid-2013, they realized they couldn’t. But they still pushed forward on three fronts:

• They explored whether they could refinance the Build America bonds to get out from that program’s rules. But to be refinanced, Eskenazi would have been forced to repay all remaining interest—about 25 years’ worth—at once, a big financial hit. Harris said Eskenazi even looked at whether it could offset that financial penalty with efficiencies gained by combining functions with Community, but concluded the penalty would still far outweigh the savings.

 Harris“We realized both our organizations are very tightly run organizations,” Harris said.

Eskenazi employs about 4,000 people serving mostly the indigent and uninsured in Indianapolis. In 2013, Eskenazi’s revenue reached $465 million, which allowed it to break even.

Community employs 11,000 people at eight hospitals and hundreds of other health care locations around Indianapolis and in Kokomo. In 2013, revenue was nearly $1.8 billion and profit from operations topped $54 million.

• Eskenazi and Community hired lobbyists to petition the federal government to change the laws or rules governing the Build America bonds. According to the Center for Responsive Politics, Health & Hospital Corp. spent $167,500 last year lobbying the federal government—more than double the amount it typically does—and $60,000 so far in 2014.

Officials at the U.S. Treasury Department listened to the Eskenazi representatives, but said the issue was too small for them to get involved in.

Several members of Congress, from the House and Senate, also listened. The problem was that virtually no bills that change the U.S. tax code are even moving through Congress and any that do get close scrutiny for “earmarks” that help projects in specific localities.

The Community-Eskenazi request was not a typical earmark, in that it was not a petition for federal funding, but members of Congress worried it would be perceived that way, Gutwein said.

“The opportunities for a fix are exceedingly rare,” Gutwein said of the congressional legislative process.

• Community and Eskenazi explored trying to work together in a structure that still kept them legally separate. But what they came up with was a labyrinthine collection of joint ventures reporting to joint ventures that would have made it especially difficult to get teams of nurses, let alone executives, in a room to share data and talk strategy.

“Inefficient doesn’t even begin to describe how unworkable it would have been,” Harris said. And that would have prevented Eskenazi and Community from achieving their overarching goal for the integration—to pool resources in order to serve more patients.

In a last-ditch effort, Community and Eskenazi assembled nearly 20 people in a conference room at a downtown law firm for two all-day meetings. Each side had its top managers there, as well as lawyers in three specialties: tax law, antitrust law and mergers & acquisitions.

At the end of the first day, however, Mills concluded it was hopeless and “called a timeout.”

“We just can’t get it done because of the complexity of trying to deal with a governmental agency,” Mills explained during an internal presentation in February, when for the first time he told Community’s employees the deal was off.

Some Community employees have suggested Community backed out of the deal because it suffered a spike last year in patients who couldn’t pay their bills.

Community spent $25.5 million more last year on charity care than it did the previous year, and $10.3 million more on bad debt.

“Our charity care went through the roof,” Mills acknowledged in an interview, but he said that development played no part in his decision to halt the deal.

Since September, the two sides have kept quiet about the change in plans as they continued their lobbying efforts and had smaller discussions about ways in which they could collaborate.

Community and Eskenazi have for years collaborated on behavioral health care, working through an organization called InteCare. That relationship will continue and is even set to expand soon with the launch of a suicide-prevention program.

In addition, Community has turned to Eskenazi to handle trauma patients, particularly orthopedic traumas.

More broadly, Mills said that he, Harris and Gutwein—as well as many other people in their respective organizations—have become friends through the hours they spent working to integrate the hospitals. And those relationships will help as both organizations try to navigate changes coming from health care reform.

Even though their full-integration deal is not going forward, both Gutwein and Mills stopped short of saying the deal was completely off.

“It’s not actually ended yet,” Gutwein said. “We still would like to get a change in the rules.”•

 

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  • great reporting
    This is why we all need to support good old fashioned investigative journalism. J.K. I am sure there is much more to the story that couldn't share but this insight is wonderful. Interesting that over $2500 per Community employee is charity write offs. I would be interested in total legal fees per Community employee too!

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  1. This is the dissent discussed in the comment below. See comments on that story for an amazing discussion of likely judicial corruption of some kind, the rejection of the rule of law at the very least. http://www.theindianalawyer.com/justices-deny-transfer-to-child-custody-case/PARAMS/article/42774#comment

  2. That means much to me, thank you. My own communion, to which I came in my 30's from a protestant evangelical background, refuses to so affirm me, the Bishop's courtiers all saying, when it matters, that they defer to the state, and trust that the state would not be wrong as to me. (LIttle did I know that is the most common modernist catholic position on the state -- at least when the state acts consistent with the philosophy of the democrat party). I asked my RCC pastor to stand with me before the Examiners after they demanded that I disavow God's law on the record .... he refused, saying the Bishop would not allow it. I filed all of my file in the open in federal court so the Bishop's men could see what had been done ... they refused to look. (But the 7th Cir and federal judge Theresa Springmann gave me the honor of admission after so reading, even though ISC had denied me, rendering me a very rare bird). Such affirmation from a fellow believer as you have done here has been rare for me, and that dearth of solidarity, and the economic pain visited upon my wife and five children, have been the hardest part of the struggle. They did indeed banish me, for life, and so, in substance did the the Diocese, which treated me like a pariah, but thanks to this ezine ... and this is simply amazing to me .... because of this ezine I am not silenced. This ezine allowing us to speak to the corruption that the former chief "justice" left behind, yet embedded in his systems when he retired ... the openness to discuss that corruption (like that revealed in the recent whistleblowing dissent by courageous Justice David and fresh breath of air Chief Justice Rush,) is a great example of the First Amendment at work. I will not be silenced as long as this tree falling in the wood can be heard. The Hoosier Judiciary has deep seated problems, generational corruption, ideological corruption. Many cases demonstrate this. It must be spotlighted. The corrupted system has no hold on me now, none. I have survived their best shots. It is now my time to not be silent. To the Glory of God, and for the good of man's law. (It almost always works that way as to the true law, as I explained the bar examiners -- who refused to follow even their own statutory law and violated core organic law when banishing me for life -- actually revealing themselves to be lawless.)

  3. to answer your questions, you would still be practicing law and its very sad because we need lawyers like you to stand up for the little guy who have no voice. You probably were a threat to them and they didnt know how to handle the truth and did not want anyone to "rock the boat" so instead of allowing you to keep praticing they banished you, silenced you , the cowards that they are.

  4. His brother was a former prosecuting attorney for Crawford County, disiplined for stealing law books after his term, and embezzeling funds from family and clients. Highly functional family great morals and values...

  5. Wondering if the father was a Lodge member?

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