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
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. Building social-media presence is inevitable for Law Firms. These tips are very useful to strengthen social media presence. Thank you for sharing this. NirwanLawCorp.com.

  2. Mr. Levin says that the BMV engaged in misconduct--that the BMV (or, rather, someone in the BMV) knew Indiana motorists were being overcharged fees but did nothing to correct the situation. Such misconduct, whether engaged in by one individual or by a group, is called theft (defined as knowingly or intentionally exerting unauthorized control over the property of another person with the intent to deprive the other person of the property's value or use). Theft is a crime in Indiana (as it still is in most of the civilized world). One wonders, then, why there have been no criminal prosecutions of BMV officials for this theft? Government misconduct doesn't occur in a vacuum. An individual who works for or oversees a government agency is responsible for the misconduct. In this instance, somebody (or somebodies) with the BMV, at some time, knew Indiana motorists were being overcharged. What's more, this person (or these people), even after having the error of their ways pointed out to them, did nothing to fix the problem. Instead, the overcharges continued. Thus, the taxpayers of Indiana are also on the hook for the millions of dollars in attorneys fees (for both sides; the BMV didn't see fit to avail itself of the services of a lawyer employed by the state government) that had to be spent in order to finally convince the BMV that stealing money from Indiana motorists was a bad thing. Given that the BMV official(s) responsible for this crime continued their misconduct, covered it up, and never did anything until the agency reached an agreeable settlement, it seems the statute of limitations for prosecuting these folks has not yet run. I hope our Attorney General is paying attention to this fiasco and is seriously considering prosecution. Indiana, the state that works . . . for thieves.

  3. I'm glad that attorney Carl Hayes, who represented the BMV in this case, is able to say that his client "is pleased to have resolved the issue". Everyone makes mistakes, even bureaucratic behemoths like Indiana's BMV. So to some extent we need to be forgiving of such mistakes. But when those mistakes are going to cost Indiana taxpayers millions of dollars to rectify (because neither plaintiff's counsel nor Mr. Hayes gave freely of their services, and the BMV, being a state-funded agency, relies on taxpayer dollars to pay these attorneys their fees), the agency doesn't have a right to feel "pleased to have resolved the issue". One is left wondering why the BMV feels so pleased with this resolution? The magnitude of the agency's overcharges might suggest to some that, perhaps, these errors were more than mere oversight. Could this be why the agency is so "pleased" with this resolution? Will Indiana motorists ever be assured that the culture of incompetence (if not worse) that the BMV seems to have fostered is no longer the status quo? Or will even more "overcharges" and lawsuits result? It's fairly obvious who is really "pleased to have resolved the issue", and it's not Indiana's taxpayers who are on the hook for the legal fees generated in these cases.

  4. We are a Finance Industry Company professionals with over 15 Years Experience and a focus on providing Bank Guarantee and Standby Letter of Credit from some of the World Top 25 Prime Banks primarily from Barclays, Deutsche Bank, HSBC,Credit Suisse e.t.c. FEATURES: Amounts from $1 million to 5 Billion+ Euro’s or US Dollars Great Attorney Trust Account Protection Delivered via MT760, MT799 and MT103 Swift with Full Bank Responsibility Brokers Always Protected Purchase Instrument of BG/SBLC : 32%+2% Min Face Value cut = EUR/USD 1M-5B Lease Instrument of BG/SBLC : 4%+2% Min Face Value cut = EUR/USD 1M-5B Interested Agents/Brokers, Investors and Individual proposing international project funding should contact us for directives.We will be glad to share our working procedures with you upon request. We Facilitate Bank instruments SBLC for Lease and Purchase. Whether you are a new startup, medium or large establishment that needs a financial solution to fund/get your project off the ground or business looking for extra capital to expand your operation,our company renders credible and trusted bank guarantee provider who are willing to fund and give financing solutions that suits your specific business needs. We help you secure and issue sblc and bank guarantee for your trade, projects and investment from top AA rated world Banks like HSBC, Barclays, Dutch Ing Bank, Llyods e.t.c because that’s the best and safest strategy for our clients.e.t.c DESCRIPTION OF INSTRUMENTS 1. Instrument: Funds backed Bank Guarantee(BG) ICC-600 2. Currency : USD/EURO 3. Age of Issue: Fresh Cut 4. Term: One year and One day 5. Contract Amount: United State Dollars/Euros (Buyers Face Value) 6. Price : Buy:32%+1, Lease: 4%+2 7. Subsequent tranches: To be mutually agreed between both parties 8. Issuing Bank: Top RATED world banks like HSBC, Barclays, ING Dutch Bank, Llyods e.t.c 9. Delivery Term: Pre advise MT199 or MT799 first. Followed By SWIFT MT760 10. Payment Term: MT799 & Settlement via MT103 11. Hard Copy: By Bank Bonded Courier Interested Agents,Brokers, Investors and Individual proposing international project funding should contact us for directives.We will be glad to share our working procedures with you upon request. Name:Richardson McAnthony Contact Mail : intertekfinance@gmail.com

  5. Affordable Loan Offer (ericloanfinance@hotmail.com) NEED A LOAN?Sometime i really wanna help those in a financial problems.i was wondering why some people talks about inability to get a loan from a bank/company. have you guys ever try Eric Benson lending service.it cost dollars to loan from their company. my aunty from USA,just got a home loan from Eric Benson Lending banking card service.and they gave her a loan of 8,000,000 USD. they give out loan from 100,000 USD - 100,000,000 USD. try it yourself and testimony. have a great day as you try.Kiss & Hug. Contact E-mail: ericloanfinance@hotmail.com

ADVERTISEMENT