For Immediate Release - September 07, 2011

AG Coakley Enhances and Approves Quincy Medical Center and Morton Hospital Transactions with Steward

AG Approvals Will Preserve Access to Full Service Acute Care Hospitals, which Employ 2,300, for Taunton and Quincy Communities, Ensure Significant Capital Investment to Hospital Facilities

BOSTON - Attorney General Martha Coakley's Office has secured significant improvements and conditions as part of approving the proposed transfers of Morton Hospital in Taunton and Quincy Medical Center in Quincy to an affiliate of Steward Health Care System LLC (Steward.)

As part of each investigation and approval, the AG's Office improved the original terms of the asset purchase agreement to include a number of additional safeguards designed to ensure the transactions are in the public interest. In both transactions, the AG determined that the proposed transfer of the non-profit acute care hospital to a for-profit entity, with the additional changes negotiated by the AG's Office, meets the factors identified in state law. The AG issued detailed reports on both transactions today.

"Today's approvals ensure that the communities of Quincy and Taunton will have local access to full service acute care hospitals with an influx of capital that will improve facilities and preserve jobs," said AG Coakley. "In our effort to protect the public interest, we have enhanced these transactions by providing additional stability, oversight and commitments to vital community programs and services."

MORTON HOSPITAL
The Attorney General's approval of the Morton transaction will ensure the continuation of a full service acute care hospital for the residents of Taunton and its surrounding communities, maintain key jobs (Morton currently employs 1,200 people), and ensure the pensions of approximately 1,800 current and former employees. In finding that the public interest is satisfied in the Morton transaction, the AG's report notes that the revised agreements also require Steward to:

  • Maintain an acute care hospital in Taunton during the 10-Year No Close period;
  • Pay off Morton's outstanding debt and commit to at least $110 to $120 million in capital improvements over ten years with $85 million to be spent within the first 5 years including at least $25.5 million in the first year; and
  • Maintain current levels of indigent, charity care, and community benefit expenditures during the 10 year no close period and maintain charity care and community benefit programs consistent with Attorney General guidelines thereafter.

Also at the AG's Office request, Steward agreed to make numerous enhancements to its original agreement with Morton, which include:

  • Clarifying that Steward is obligated during the10-Year No-Close Period to maintain an acute care hospital that shall provide at least substantially the same services as currently provided by Morton Hospital;
  • Ensuring a minimum aggregate capital commitment of at least $25 million by Steward in years 6-10;
  • Preventing Steward from transferring ownership of the hospital individually for five years;
  • Preserving 14 elder behavioral health service, inpatient psychiatric beds during the no close period;
  • Continuing as part of its community benefit program the following services that Morton Hospital currently provides to the community: (i) its Adult Uninsured Clinic, and (ii) school-based health centers; and
  • Giving the Attorney General the direct authority to enforce the commitments of Steward following this transaction.

QUINCY MEDICAL CENTER
The Attorney General's approval of the Quincy Medical Center transaction will ensure that the hospital emerges from bankruptcy in the best position to provide Quincy's 92,000 residents with access to a full service acute care hospital and maintain key jobs (Quincy Medical Center currently employs 1,100 people). Steward has agreed to $44 to $54 million in facility upgrades. In finding that the public interest is satisfied in the Quincy transaction, the revised agreements require Steward to:

  • Maintain an acute care hospital in Quincy that provides at least the same scope of services during a 10-Year No Close period;
  • Pay $35-$38 million dollars toward Quincy's outstanding debt through the Bankruptcy Court;
  • Commit to spend, within five years, no less than $34 million in capital expenditures, including no less than $15 million within the first year and another $10 million in the second year;
  • Spend between $10 million and $20 million for the capital needs of Quincy Medical Center in years 6-10;
  • Maintain charity care and community benefit expenditures at least at the current levels for Quincy Medical Center during the 10-Year No Close Period and maintain charity care and community benefit programs consistent with Attorney General guidelines thereafter; and
  • Recognize each bargaining unit provided for under existing or expired collective bargaining agreements.

Steward has also agreed to make modifications to its agreement with Quincy Medical Center at the request of the AG's Office. These enhancements, among many other changes, include:

  • Ensuring Steward's capital commitment in years 6-10 includes a minimum commitment of at least $10 million;
  • Preventing Steward from transferring ownership of the hospital individually for five years;
  • Preserving Quincy Medical Center's 22 inpatient, geriatric psychiatric beds;
  • Agreeing to maintain charity care and community benefit programs. This includes community benefit outreach services to the substantial Asian population in the service area, including an Asian Outreach Coordinator, a chest clinic and the provision and training of medical interpreters;
  • Requiring Steward to donate unspent funds to a health care charity if Steward fails to meet its minimum capital expenditure obligations in the first five years; and
  • Giving the Attorney General's Office the direct authority to enforce the post-closing commitments of Steward.

In any transaction involving the transfer of a non-profit 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 these two transactions, the AG's Office found that: (1) it is impracticable for each hospital to continue its current operations in charitable form; (2) due care was followed by each Board and senior management during the transaction; (3) there was no self-dealing or conflict of interest mismanagement with respect to either transaction; (4) each hospital will receive fair value for its assets and operations; and (5) the transfer is in the public interest.

In the Quincy Medical Center transaction, the AG's Office will file its report along with a request for the United States Bankruptcy Court to approve the proposed sale of the hospital to Steward as part of the hospital's long-term restructuring plan. The United States Bankruptcy Code was amended in 2005 to ensure that the transfer of non-profit organizations to for profit entities through the bankruptcy process also conforms to state law, in this case requiring the AG's approval of any transfer of a non-profit acute care hospital to a for profit entity. Quincy Medical Center will subsequently file a petition with the Massachusetts Supreme Judicial Court (SJC) seeking approval for the appropriate disposition of the charity's donor-restricted funds, which shall be subject to the oversight and the assent of the Attorney General. The Department of Public Health must also approve the transaction for it to proceed.

For the Morton Hospital transaction, the AG's Office intends to assent to a complaint to be filed by the hospital with the SJC 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.

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