It was intended as “some simple restructuring,” but South County Hospital President Patrick Muldoon learned quickly back in 1998 that anything that kicked in the state’s Hospital Conversions Act would be anything but simple. Their plan – streamline the governing structure by consolidating several smaller corporations under the hospital, a.k.a. South County Health Care System. This meant making the old hospital parent, South County Hospital Foundation, which managed their endowment, into a subsidiary and creating a new parent, the hospital.
But alas, that meant that “technically the ownership of the hospital would be changing,” Muldoon said, which therefore meant the conversions act and a costly and time consuming review by both the Attorney General and the Department of Health. “It’s much too cumbersome. We said, this is not significant enough [to] spend all this energy, resources and legal costs,” Muldoon said, adding that the estimate they got for the process was “nine to 12 months at the quickest.”
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So they consolidated a different way, which still increased their efficiency but left the hospital with not one but two corporations.
“We found a different way to skin a cat,” Muldoon said, adding that although the act’s intent may have been good, South County Hospital’s experience of getting “caught up in this sale of hospital assets paranoia” proved there were “consequences [in the act] that were unnecessary.”
The Hospital Conversions Act, adopted by a significant majority in 1997 by the General Assembly despite a strenuous veto by Gov. Lincoln Almond, was designed to expand the state’s role in regulating hospital mergers and acquisitions.
From the start it was a contentious piece of legislation based primarily on stopping the purchase of Roger Williams Hospital by the country’s largest for-profit hospital chain, Columbia/HCA Healthcare Corp. The act also created the review process in which a proposed merger between Lifespan and Care New England is currently engulfed. Last week Attorney General spokesman Jim Martin said that pending document submission the merger plan was still at a “stand-down.”
”It made Rhode Island look anti-business,” Almond said last week, remembering the debate three years previously and how he thought then and still does that the conversion act “was put in for the wrong reasons.”
The conversions act limits the number of for-profit, acute-care hospitals in Rhode Island and limits health-care chains to buying just one hospital in a three-year period. It also has a provision that requires a months-long approval process by the attorney general’s office and the state Department of Health, in that order, when at least 20 percent of one institution’s assets are to be transferred to another.
All it’s done, Almond said, is “put barriers up for the infusion of capital” into the state, which is always a problem, more so considering health care is Rhode Island’s number one industry. “In this day and age you don’t want to put any barriers up, and we’ve done it,” he said, adding that it’s also effectively quelled out-of-state interest, aside from the Lifespan network’s foray into Massachusetts with New England Medical Center, a deal that squeaked in just before the act passed.
Other effects – Care New England’s bid to join CareGroup in Boston, squashed, inspiring Tenet Healthcare Corp. to back out from buying Landmark Medical Center. “We’ve had no [business] movement at all, and I don’t think that’s good for Rhode Island. We are part of a regional market whether we like it or not,” Almond said, adding that there’s no other industry in the state where there is this “impeding just for the sake of impeding.”
He also said the act’s undue emphasis on restricting for-profit chains skirts current realities in the health care market. “I don’t think it should be an issue of for-profit or not-for-profit. I think you can have excellence in both [cases if] that’s what you demand.”
Many researchers who have studied hospital conversions in the last few years agree that change in a hospital’s corporate tax structure does not unduly affect levels of community or charitable care. “We do not know that conversion to for-profit status is necessarily bad,” said Frank Sloan, a health policy researcher at Duke University in North Carolina, adding that a recent Duke University study “found no adverse effect of ownership conversions on quality of care.”
Jack Needleman, Ph.D., an assistant professor of economics and health policy at Harvard University, said last week that he’s seen virtually no differences in costs or services offered between for-profit and nonprofit hospitals (once size and teaching status are controlled) and only small differences in charity care.
Using data from California and Florida Needleman said the most significant changes occur with respect to entry, exit and pricing, and generally hospitals with modest demands for providing charitable care don’t change much post conversion.
But there is “some evidence” of levels going down at hospitals where charitable care had a “higher priority” in their mission, Needleman said. “You have to look at the service area and what the mission is,” Needleman said, adding that Rhode Island’s limit on the number of hospital conversions to for-profit in a particular time frame is “pretty distinct” in the country.
“Conversions should be analyzed on a case by case basis. In general I do not think that numerical quotas are a good idea,” Sloan agreed. “Yours [Rhode Island law] is not a quota per se, but establishing numerical criteria is generally an easy way out.”
”I would say the conversions act as far as South County [hospital] is concerned has not had a positive impact,” said Edward J. Quinlan, president of the Hospital Association of Rhode Island, which had a hefty role in getting an amendment to the act passed this year that will make the attorney general and health department reviews concurrent.
Prior to the conversions act there were already reviews in place to monitor charitable assets and quality of care, Quinlan said.
Besides being “a huge roadblock for mergers and conversions,” the act has also “absolutely” hampered creative corporate thinking, Quinlan said, “at a time when the industry is under tremendous financial pressure” and it’s even more critical that the regulatory process “move with some promptness.”
A major proponent originally of the Hospital Conversions Act was U.S. Rep. Patrick J. Kennedy, who said at the time that corporate greed and dominance in hospitals would mean hospital closings, fewer beds, layoffs and local vendors losing out to national suppliers – an emphasis on profits that could be “fatal.”
Last week Kennedy reiterated those concerns and called the Hospital Conversions Act “one of the most important legislative initiatives to have passed in Rhode Island in the last several years.
