For Immediate Release - October 06, 2010

AG Coakley Restructures Deal with Steward as Part of Office's Review, Supports Hospital Transaction

Deal Will Preserve Access to Health Care for Thousands of Residents, Protect 12,000 Jobs, Create an Estimated 3,000-4,000 Additional Jobs and Provide Millions in Capital Improvements to Health Facilities; New Conditions Secured By AG's Office Include Unprecedented Oversight Over For-Profit Chain By AG and DPH, Additional Protections to Prevent the Hospitals From Being Closed, and Preservation of Psychiatric and Detoxification Beds

BOSTON - Following a five month investigation of the proposed transfer of the Caritas System to Steward Health Care System LLC, an affiliate of Cerberus Capital Management, L.P., Attorney General Martha Coakley announced that her office has restructured the original asset purchase agreement to include a number of safeguards designed to protect health care consumers in Massachusetts.

Attorney General Coakley also released a report pdf format of Statement_of_the_Attorney_General_Caritas_Christi_
today finding that the proposed transfer of the non-profit acute care hospitals to a for-profit entity, with the additional changes negotiated over the last several months, meets the factors identified in state law and that her office will assent to a complaint to be filed by Caritas with the Supreme Judicial Court seeking approval of the transaction.

The proposed deal will help preserve health care access for community residents of the six Caritas hospitals, maintain the jobs of the current 12,000 Caritas employees, create an estimated 3,000 - 4,000 additional jobs, and ensure $400 million in capital improvements to the health facilities.

Additional protections negotiated by Coakley's office include an assurance that the six hospitals will not be transferred for three years, extending the period by which hospitals may not be closed from three to five years provided certain conditions are met, preventing reductions in inpatient psychiatric and detoxification beds and funding a $1.5 million five-year monitoring, assessment, and evaluation conducted by the Attorney General and the Department of Public Health of the impact of the transaction on health care costs and services within the communities served by Caritas.

"With the changes our office negotiated with Steward, we found that the transfer of assets will continue the vital services that these hospitals provide while protecting and creating jobs and preserving the pensions of 13,000 current and former Caritas employees," said AG Coakley. "After considerable negotiations with our office, we have ensured further protections to prevent Steward from closing or transferring these hospitals and extended the state's ability to monitor Steward to five years. This will preserve access to health care for the residents who use these hospitals for important care and services."

In finding that the public interest factor is satisfied, the Attorney General's report notes that the revised agreements require Steward to:

  • Fully fund the pensions of approximately 13,000 current and former Caritas employees, which currently are at risk;
  • Satisfy outstanding Caritas debt and commit to no less than $400 million in capital improvements within four years, which is estimated to create 3,000 to 4,000 jobs;
  • Maintain current levels of indigent and charity care, community benefit expenditures and pastoral care and related services;
  • Preserve the jobs of approximately 12,000 Caritas employees; and
  • Honor commitments made by Caritas in the past to donors.

During negotiations, the Attorney General's Office requested and Steward agree to modify its original agreement with Caritas to:

  • Prevent Steward from transferring ownership of any of the six hospitals in the system for three years, in addition to the initial provision that prevented closure of the hospitals in the first three years;
  • Extend the three-year period during which Steward may not close any of the hospitals in the system for an additional two years provided certain financial performance margins are met and a robust public comment and reporting period has proceeded any closing during this extended period;
  • During this same period and subject to the same criteria, prevent Steward from reducing the number of inpatient psychiatric and detoxification beds in any of the hospitals in the system. The need for inpatient psychiatric and detoxification hospital beds is critical and their availability, in part due to unfavorable reimbursement, is well-below demand;
  • Require Steward to cover $45 million in additional liabilities of the pension plan that covers 13,000 current and past employees of Caritas;
  • Require Steward to cooperate with, and fund a $1.5 million five-year monitoring, assessment, and evaluation conducted by the Attorney General and Department of Public Health of the impact of the transaction on health care costs and services within the communities served by Caritas; and
  • Giving the Attorney General the direct authority to enforce the post-Closing commitments of Steward.

In any transaction involving the transfer of a hospital's charitable assets to a for-profit entity, the Attorney General's Office has statutory authority to conduct a review of the proposed transfer. In its review of the Caritas transaction, the Attorney General's Office found that: (1) it is impracticable for Caritas to continue to survive in its current charitable form; (2) due care was followed by the Caritas Board and senior management during the transaction; (3) the Board and senior management appropriately disclosed and managed conflicts of interest; (4) the transfer of assets affords Caritas fair value for its assets and operations; and (5) the transfer is in the public interest.

The Attorney General's Office conducted a five month investigation of the transaction, holding public hearings in June and early July in the communities of each of the six Caritas hospitals. The Office also accepted public comments throughout the process. In conducting the investigation, the Attorney General reviewed financial records, minutes, reports, and other documents provided in response to document production requests of the Attorney General; submitted interrogatories to be answered under oath to all members of the Caritas Board and senior management; interviewed key Board members, the Chief Executive Officer, and the General Counsel of Caritas; and retained consultants to assist the Attorney General in her analysis.

The Attorney General's Office received hundreds of comments largely supportive of the transaction during her investigation. Among them were letters of support from United States Senators John Kerry and Scott Brown, much of the state's congressional delegation, Boston Mayor Thomas Menino, local officials in each of the communities served by a Caritas hospital and labor unions throughout the Commonwealth. The Report includes a nine page Appendix responding to comments and concerns raised by members of the public during the Attorney General's investigation. The report also contains copies of certain ancillary agreements to be entered into with the Attorney General regarding enforcement of the post-closing conditions of the APA, the assessment and monitoring functions post-closing, enforcement of the pension transfer agreement and assuring an orderly transition of the endowment funds and other remaining assets.

The report notes that the Attorney General's Office will assent to a complaint to be filed by Caritas with the Supreme Judicial Court of the Commonwealth of Massachusetts seeking approval of the transaction. Approval by the court is required for the transaction to proceed. The Department of Public Health must also approve the transaction for it to proceed.

This review was overseen by David Spackman, Chief of Attorney General Martha Coakley's Non-Profit Organizations/Public Charities Division.

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