Name: John J. Hynes
Age: 53
Position: President and chief executive officer of Care New England Health System (Women & Infants, Kent County Memorial and Butler hospitals)
Background: President and chief executive officer of Kent County Memorial Hospital, 1985-1996. Partner, Hinckley, Allen, Snyder & Comen law offices, 1980-1984. Various hospital management jobs, 1971-1979. Active duty, U.S. Air Force, 1967-71.
Education: B.S., Providence College, 1967; M.S., Trinity University, 1973; J.D., Suffolk University, 1979.
Family: Married, three children
Residence: Warwick
PBN: What was your initial reaction to Atty. Gen. Jeffrey Pine’s decision to reject Care New England’s bid to be taken over by CareGroup of Boston?
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HYNES: When we received the communication, which was about 3:30 on Friday afternoon (Sept. 4), we were surprised, number one. I think we were disappointed. But I also think we believed, truly, that it was the wrong decision for lots of reasons.
Such as?
We worked for about six or seven months in just developing the strategic plan internally, and we adopted that in December of 1996. And, among a number of different things that we decided, was that if we concluded that we needed to have relationships with other organizations, what would we want to look for?
We sort of distilled it down into four or five criteria: whether they had financial strength, whether they had position in the marketplace, the quality of their programs, whether they would present regulatory hurdles to consummate a transaction, whether they were people who were genuine in establishing a relationship, and whether they were people we could work with.
And you concluded that CareGroup fit that bill.
We chose CareGroup because we felt that, with the marketplace becoming more regional from a payor standpoint and even from a provider standpoint, and given the relationships that both Women & Infants and Butler have with organizations outside of Rhode Island, it was natural for us to look and say, well if Rhode Island contains a population of a million people, where will be the next hub of medical care and how might we relate to that?
Why exactly did Pine’s decision surprise you?
I think the decision was sort of bizarre. With all the people involved in reviewing this matter — I mean these are very successful people that have served these hospitals and the communities that they represent collectively for probably a couple hundred years — it’s not like they just sort of got off at the last bus stop and found their way into the board room.
What I really am saying there is (that) we think the judgment of the trustees was really substituted in a way that was incorrect. Certainly (Pine’s staff is) entitled to their decision. We just happen to think it was wrong. We think it represents a misunderstanding of the transaction. We think it represents a misunderstanding of the marketplace. We think it fails to take into consideration what’s going on financially throughout the entire region.
The idea of Rhode Island becoming an island is a bit troubling. If you read the decision, I think what the suggestion is is that it’s unlikely that an interstate merger would be approved by that office unless a Rhode Island organization became a controlling interest.
How do you respond to Pine’s reasons for rejecting the merger? Number one, that the deal would have given Care New England only nine of 38 seats on the CareGroup board of directors with no guarantee for the future.
You need to start off with a representative group and as that group becomes comfortable, as the policies get adopted, as sort of the rules of commerce become generally known and accepted by people, you become more of a regional network and not necessarily part of a geographical-based entity within part of a larger organization.
What the document was saying was that the trustees and the directors should really be reflective of the area being served. If you’re going to create a regional network, then you’re going to have to have representatives from the region to provide the right kind of service for the communities that are being served. It’s highly unlikely that you’re going to find a representative in someone who’s not representative of the region at all.
The composition of the board would generally reflect the composition of the region.
What about CareGroup’s power to amend Care New England bylaws?
I
think it’s a little out of context. Whenever you have an organization, if you’re going to pass the anti-trust muster that you need to in order to be able to do the things that are necessary, there are certain powers that have to be reserved to the parent.
The reservation of that right in CareGroup is a right that’s usually reserved in any company that has the parent relationship. The fear of that kind of organization exercising that right was something that we certainly thought about. But, in the context of the organization, we felt that there were enough protections in there and that we had enough interest in seats on the board and in management that we would be able to prevent the draconian changes that people in their worst nightmare think could happen. I mean you have to remember:
Why is CareGroup doing this? Why are we doing this? We want to develop a successful regional delivery system. If you’ve got a large component of that section located down here, you need to have people that you can rely on to understand what’s going on here or you’re not going to be successful. So why would you alienate (them)? It’s not practical. Is it theoretically possible? It’s theoretically possible for bylaws to get unilaterally changed. But the reality of those things being done in a cavalier manner without any sort of opportunity to speak out against it and to prevent untoward action is remote.
What about Care New England’s $25 million contribution to the CareGroup network, again with no guarantee how that money would be spent?
First of all Care New England is not paying anything to anybody. It has been absolutely mischaracterized as a $25 million payment, as a $25 million ante, as a payment to be taken over. Every one of those terms is unequivocally false. What the $25 million represents is a commitment by Care New England to become part of a regional network out of which will flow a number of networks including the participation and acquisition and development of a management and clinical information system.
Twelve-and-a-half million of the $25 million was to be spent for information systems. We had already budgeted $16 million, which we basically pulled out of the budget because we felt that we would get more and a better information system for $12.5 million than we could get on our own.
There are categories of capital expenses for which this money would be devoted. Right in the (proposed merger) document $12.5 million comes out for the information system. Now, the other categories of expenditure which we wouldn’t have to spend — but if called upon we would — is the development of outreach clinics. Does that benefit us? You bet it does from the standpoint of additional patients, having physicians out in the community, our ability to access kinds of technology that we otherwise would have had to spend maybe 30 or 40 percent more for, our ability to participate in the promotion of this system, .the ability to join together in research protocols.
We had to develop an outreach site for some of the behavioral medicine clinics at Butler, and we actually tested this whole business about whether the $25 million can be used for things that we need. So we wrote a letter to CareGroup indicating we need a development outreach center: it’s going to cost us $300,000. We would like that to be used as a draw against the $25 million commitment.
And what was CareGroup’s response?
No problem. Absolutely. That was in September of 1997. We believe that the $25 million probably buys $30 (million) to $40 million worth of benefit for our system just in terms of the technology. So we thought it was actually, as opposed to an ante, a real investment. We would have spent the money anyway.
Would merging with CareGroup be joining hands with a financially troubled organization, as Pine has said?
Interesting. CareGroup, like a lot of organizations, is running operating losses. But if you look at their operating budget versus their balance sheet, you’re going to see some different stories. CareGroup like Lifespan, like Care New England, like every hospital in this region and in this country is really struggling with the Medicare cuts. And everyone is trying to work their way out of this situation. If you look at CareGroup’s balance sheet, they’re a very strong organization. They went out and refinanced $375 million in debt last winter. And they were double-A rated. Now, people who have no interest whatsoever in hospitals have to push this money; and they’re not going to rate it in a manner that basically puts them and their reputations in jeopardy. They wouldn’t rate it double-A unless they thought this is an organization that had long-term survival power and asset strength that was second to none.
So you’re saying it would be impossible to find a health care network that isn’t suffering some kind of operating loss right now.
I think it would be pretty hard.
So what’s Care New England going to do now?
We have a range of options. We have a strategic plan and we’re certainly going to revisit it. How has the landscape changed? When the plan was made, the Hospital Conversions Act was not in place. Nor was a decision by the Attorney General based on that law. So we’ve got those two elements (that) have interjected something into the environment since we adopted this. We need to sort of circle back and revisit that.
The other thing we need to do is decide whether or not we want to at least point out what we think the irregularities were in that decision. We can decide whether we want to appeal that. And that’s a process that we’re thinking about as we go through.
The third thing that we can do is we can pursue things that make sense — joint ventures in women’s health and behavioral health.
e fourth thing we can do is we can decide whether we want to re-file this application with a new attorney general with maybe a level of better understanding about what’s going on. This hasn’t been an easy process for anybody. I just think the application was very misunderstood. It’s very emotional.
And the last one is to pursue those (hospital) relationships that make sense. There are many hospitals that want to maintain women’s services and neo-natal services that need to have some back-up. We continue to work on that. We can’t sit still and wait for these regulatory processes.
Of those options, do you know which is most likely?
No, not really. I think basically we need time for everyone to settle down and reflect on: does the strategic plan form a basis for going forward? Do we need to tweak it a little bit? Do we need to suggest there ought to be some changes in the law? Should there be some changes in the process? The process is bizarre. I mean one of our doctors was deposed for half a day. He was on the steering committee, he was on the task force, he’s the chief of OB/GYN surgery at Women & Infants and a professor at Brown. He sat on the witness stand and he was never asked about the quality of medical care and how this might improve it. He was asked just about financial due diligence and things like that. That’s not why he’s on the (Care New England) board.
I think there’s a level of understanding that’s just not there. It’s difficult to be a regulatory agency. It takes a lot of experience to be a regulatory agency. You know, this is new for the attorney general’s office. They’re not regulatory agencies. Basically they’re prosecutors and that’s a different side of the administration on behalf of the general public.
I think the law is fraught with problems. We fought against it for that very reason. Why should trustees who have served these institutions well have their judgment substituted by people who really don’t have any experience?
Does that mean Care New England will be heading a lobby for changes to the law?
I think a lot of people have to look and see what’s really happening here. Why does it make sense to have a regional medical system? It can’t be just our organization that suggests that. What are the values of it? We spoke up pretty loudly on it before and sometimes it takes a couple of years before things settle down. Unfortunately, we’ve been the first ones through this. I wish it wasn’t that way. But that’s the way it was.
You know, the most fascinating thing about this case is the issue of local control. It’s fictitious. When you think about the 60 to 70 percent of every dollar that comes in for the running of any (medical) institution in the state, the decision about how much goes in is made by people you never see. It’s made in Washington, it’s made in New York. And what these organizations are trying to do is say how are we going to do be able to deal with this influence? Nobody’s paying attention to that. They’re concerned about CareGroup in Boston? Much more attention has to be paid to what’s really happening. The Balanced Budget Act in home care was a bonanza for many parts of this country that had home care programs. But not for people in this region. (There was) not a whimper. Not a whimper. It’s created problems for Lifespan, it’s created problems for us, it’s created problems in a number of independent home care agencies in Rhode Island and Massachusetts. Who is going to deal with that issue?
The notion of being an island where we’re going to be seceding from the health care marketplace of the region, I think that’s unrealistic.
