California Attorney General Bill Lockyer has launched a statewide probe into whether the parent company of Mercy Healthcare Sacramento violated laws governing charities and anti-competitive practices when it purchased – and announced plans to close – a small Southern California hospital.
The investigation, while focused specifically on Catholic Healthcare West, could cast a light on the business practices of all tax-exempt nonprofit hospital chains, whose behavior, critics say, differs little from for-profit hospital companies.
“We are looking at the management of nonprofit hospitals and we are starting with Catholic Healthcare West,” Sandra Michioku, a Lockyer spokeswoman, said Thursday.
Industry watchers say the territory is ripe for exploration.
“This is an excellent area to open up,” said Jamie Court of the Santa Monica-based Foundation For Taxpayer and Consumer Rights. “In the managed-care age, nonprofits have taken much the same position as their for-profit counterparts, yet they get huge tax breaks.”
The investigation comes at a time when all California hospitals face rising medical costs, shrinking payments for services and a looming multibillion dollar mandate to retrofit their hospital facilities for earthquake safety.
As many as 60 percent of the state’s hospitals are losing money, among them Catholic Healthcare West, which lost nearly $90 million in the most recent budget year.
At issue in the probe is whether the nonprofit hospital chain acted improperly when it purchased Long Beach Community Medical Center in 1998, pledged to maintain the facility, then announced plans to close it.
Lori Aldrete, Catholic Healthcare’s vice president for communications, said the hospital group is confident it complied with all state and local laws.
She said Catholic Healthcare West’s leaders met with Lockyer over the weekend to explain the company’s decision to close the Long Beach facility.
“We were hopeful that we had clarified things, but it appears that he still has concerns,” Aldrete said. “Nobody likes to close hospitals, but you can’t keep them open if you can’t pay the bills.”
She said the hospital group has not yet received notification in writing of a broad investigation, which Lockyer aides said is in its early stages. The company will cooperate fully, she said.
Catholic Healthcare West’s critics, including the Service Employees International Union, say the group never intended for Long Beach to succeed and instead stripped it of services, which were folded into a nearby Catholic Healthcare West-owned hospital.
As business gravitated to the stronger facility, CHW labeled Long Beach a sinking ship and moved toward closing it, said Maura Kealey, the union’s statewide health care coordinator.
“With a nonprofit chain, the issue that stares you in the face is, where is the charitable mission here?” Kealey said. “Where is the responsibility to the community and where is the accountability?”
Lockyer, who is empowered by state law to regulate charities, including nonprofit hospitals, began looking into the matter at the urging of the union, which is in the middle of a hardfought campaign to organize workers at Catholic Healthcare West’s hospitals statewide.
The hospital chain feels the union’s fervor is driven by a desire to get CHW to open its doors to union organizers.
SEIU‘s Kealey rejected the hospital’s characterization of the issues.
“These issues are real,” Kealey said. “We have just brought them to light.”
While hospital closures can deal a blow to community pride, they aren’t necessarily damaging to the health care system, said Len Nichols, a health care economist with the Urban Institute.
Despite an upswing in closures nationally, the country still has an oversupply of hospitals, Nichols said. According to the American Hospital Association, only about 60 percent of hospital beds nationally are used.
“From where (Catholic Healthcare) is sitting, it doesn’t make sense to have overcapacity and operate two money-losing facilities,” said Nichols, who is not familiar with the specifics of CHW’s decision to close Long Beach Memorial. “If you have two money-losing hospitals, you can’t give much back to the poor. The only way to give money back to the poor is to have one of them make money.”
That said, closures do hurt the poor, sick and elderly, who may have difficulty getting to a more remote hospital, Nichols said. They also hurt unions – by putting workers out of jobs.
“To low-wage workers, it’s like a double kick. … They lose their hospital and they lose their employer,” Nichols said.
The attorney general’s investigation may be an opportunity to spread understanding of the financial stresses that drive hospitals to close or consolidate, said Jan Emerson, a spokeswoman for California Healthcare Association, the state’s hospital industry group.
“We welcome that and look forward to working with him,” she said.