ILNews

Legal snags kill Community-Eskenazi hospital merger

Back to TopCommentsE-mailPrintBookmark and Share

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.”•

 

ADVERTISEMENT

  • 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!

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by

facebook - twitter on Facebook & Twitter

Indiana State Bar Association

Indianapolis Bar Association

Evansville Bar Association

Allen County Bar Association

Indiana Lawyer on Facebook

facebook
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. I work with some older lawyers in the 70s, 80s, and they are sharp as tacks compared to the foggy minded, undisciplined, inexperienced, listless & aimless "youths" being churned out by the diploma mill law schools by the tens of thousands. A client is generally lucky to land a lawyer who has decided to stay in practice a long time. Young people shouldn't kid themselves. Experience is golden especially in something like law. When you start out as a new lawyer you are about as powerful as a babe in the cradle. Whereas the silver halo of age usually crowns someone who can strike like thunder.

  2. YES I WENT THROUGH THIS BEFORE IN A DIFFERENT SITUATION WITH MY YOUNGEST SON PEOPLE NEED TO LEAVE US ALONE WITH DCS IF WE ARE NOT HURTING OR NEGLECT OUR CHILDREN WHY ARE THEY EVEN CALLED OUT AND THE PEOPLE MAKING FALSE REPORTS NEED TO GO TO JAIL AND HAVE A CLASS D FELONY ON THERE RECORD TO SEE HOW IT FEELS. I WENT THREW ALOT WHEN HE WAS TAKEN WHAT ELSE DOES THESE SCHOOL WANT ME TO SERVE 25 YEARS TO LIFE ON LIES THERE TELLING OR EVEN LE SAME THING LIED TO THE COUNTY PROSECUTOR JUST SO I WOULD GET ARRESTED AND GET TIME HE THOUGHT AND IT TURNED OUT I DID WHAT I HAD TO DO NOT PROUD OF WHAT HAPPEN AND SHOULD KNOW ABOUT SEEKING MEDICAL ATTENTION FOR MY CHILD I AM DISABLED AND SICK OF GETTING TREATED BADLY HOW WOULD THEY LIKE IT IF I CALLED APS ON THEM FOR A CHANGE THEN THEY CAN COME AND ARREST THEM RIGHT OUT OF THE SCHOOL. NOW WE ARE HOMELESS AND THE CHILDREN ARE STAYING WITH A RELATIVE AND GUARDIAN AND THE SCHOOL WON'T LET THEM GO TO SCHOOL THERE BUT WANT THEM TO GO TO SCHOOL WHERE BULLYING IS ALLOWED REAL SMART THINKING ON A SCHOOL STAFF.

  3. Family court judges never fail to surprise me with their irrational thinking. First of all any man who abuses his wife is not fit to be a parent. A man who can't control his anger should not be allowed around his child unsupervised period. Just because he's never been convicted of abusing his child doesn't mean he won't and maybe he hasn't but a man that has such poor judgement and control is not fit to parent without oversight - only a moron would think otherwise. Secondly, why should the mother have to pay? He's the one who made the poor decisions to abuse and he should be the one to pay the price - monetarily and otherwise. Yes it's sad that the little girl may be deprived of her father, but really what kind of father is he - the one that abuses her mother the one that can't even step up and do what's necessary on his own instead the abused mother is to pay for him???? What is this Judge thinking? Another example of how this world rewards bad behavior and punishes those who do right. Way to go Judge - NOT.

  4. Right on. Legalize it. We can take billions away from the drug cartels and help reduce violence in central America and more unwanted illegal immigration all in one fell swoop. cut taxes on the savings from needless incarcerations. On and stop eroding our fourth amendment freedom or whatever's left of it.

  5. "...a switch from crop production to hog production "does not constitute a significant change."??? REALLY?!?! Any judge that cannot see a significant difference between a plant and an animal needs to find another line of work.

ADVERTISEMENT