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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. Have been seeing this wonderful physician for a few years and was one of his patients who told him about what we were being told at CVS. Multiple ones. This was a witch hunt and they shold be ashamed of how patients were treated. Most of all, CVS should be ashamed for what they put this physician through. So thankful he fought back. His office is no "pill mill'. He does drug testing multiple times a year and sees patients a minimum of four times a year.

  2. Brian W, I fear I have not been sufficiently entertaining to bring you back. Here is a real laugh track that just might do it. When one is grabbed by the scruff of his worldview and made to choose between his Confession and his profession ... it is a not a hard choice, given the Confession affects eternity. But then comes the hardship in this world. Imagine how often I hear taunts like yours ... "what, you could not even pass character and fitness after they let you sit and pass their bar exam ... dude, there must really be something wrong with you!" Even one of the Bishop's foremost courtiers said that, when explaining why the RCC refused to stand with me. You want entertaining? How about watching your personal economy crash while you have a wife and five kids to clothe and feed. And you can't because you cannot work, because those demanding you cast off your Confession to be allowed into "their" profession have all the control. And you know that they are wrong, dead wrong, and that even the professional code itself allows your Faithful stand, to wit: "A lawyer may refuse to comply with an obligation imposed by law upon a good faith belief that no valid obligation exists. The provisions of Rule 1.2(d) concerning a good faith challenge to the validity, scope, meaning or application of the law apply to challenges of legal regulation of the practice of law." YET YOU ARE A NONPERSON before the BLE, and will not be heard on your rights or their duties to the law -- you are under tyranny, not law. And so they win in this world, you lose, and you lose even your belief in the rule of law, and demoralization joins poverty, and very troubling thoughts impeaching self worth rush in to fill the void where your career once lived. Thoughts you did not think possible. You find yourself a failure ... in your profession, in your support of your family, in the mirror. And there is little to keep hope alive, because tyranny rules so firmly and none, not the church, not the NGO's, none truly give a damn. Not even a new court, who pay such lip service to justice and ancient role models. You want entertainment? Well if you are on the side of the courtiers running the system that has crushed me, as I suspect you are, then Orwell must be a real riot: "There will be no curiosity, no enjoyment of the process of life. All competing pleasures will be destroyed. But always — do not forget this, Winston — always there will be the intoxication of power, constantly increasing and constantly growing subtler. Always, at every moment, there will be the thrill of victory, the sensation of trampling on an enemy who is helpless. If you want a picture of the future, imagine a boot stamping on a human face — forever." I never thought they would win, I always thought that at the end of the day the rule of law would prevail. Yes, the rule of man's law. Instead power prevailed, so many rules broken by the system to break me. It took years, but, finally, the end that Dr Bowman predicted is upon me, the end that she advised the BLE to take to break me. Ironically, that is the one thing in her far left of center report that the BLE (after stamping, in red ink, on Jan 22) is uninterested in, as that the BLE and ADA office that used the federal statute as a sword now refuses to even dialogue on her dire prediction as to my fate. "C'est la vie" Entertaining enough for you, status quo defender?

  3. Low energy. Next!

  4. Had William Pryor made such provocative statements as a candidate for the Indiana bar he could have been blackballed as I have documented elsewhere on this ezine. That would have solved this huuuge problem for the Left and abortion industry the good old boy (and even girl) Indiana way. Note that Diane Sykes could have made a huuge difference, but she chose to look away like most all jurists who should certainly recognize a blatantly unconstitutional system when filed on their docket. See footnotes 1 & 2 here: http://caselaw.findlaw.com/us-7th-circuit/1592921.html Sykes and Kanne could have applied a well established exception to Rooker Feldman, but instead seemingly decided that was not available to conservative whistleblowers, it would seem. Just a loss and two nice footnotes to numb the pain. A few short years later Sykes ruled the very opposite on the RF question, just as she had ruled the very opposite on RF a few short years before. Indy and the abortion industry wanted me on the ground ... they got it. Thank God Alabama is not so corrupted! MAGA!!!

  5. OK, take notice. Those wondering just how corrupt the Indiana system is can see the picture in this post. Attorney Donald James did not criticize any judges, he merely, it would seem, caused some clients to file against him and then ignored his own defense. James thus disrespected the system via ignoring all and was also ordered to reimburse the commission $525.88 for the costs of prosecuting the first case against him. Yes, nearly $526 for all the costs, the state having proved it all. Ouch, right? Now consider whistleblower and constitutionalist and citizen journalist Paul Ogden who criticized a judge, defended himself in such a professional fashion as to have half the case against him thrown out by the ISC and was then handed a career ending $10,000 bill as "half the costs" of the state crucifying him. http://www.theindianalawyer.com/ogden-quitting-law-citing-high-disciplinary-fine/PARAMS/article/35323 THE TAKEAWAY MESSAGE for any who have ears to hear ... resist Star Chamber and pay with your career ... welcome to the Indiana system of (cough) justice.

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