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Clock Is Ticking On Hospital Conversion Legislation

by Christine Stuart | Apr 21, 2014 11:17am
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Posted to: Health Care, Legal, Nonprofits, Waterbury

(Updated 2:41 p.m.) Legislation addressing the burning question of whether for profit entities should be allowed to purchase nonprofit hospitals in the state is still “a work in progress,” Gov. Dannel P. Malloy said Friday.

“I have concerns about what might end up in that bill,” Malloy said.

Last year, Malloy vetoed a bill that would have made it easier for a private, for-profit hospital company to purchase physician practices from a nonprofit hospital. This year, lawmakers are debating legislation that would increase state oversight of nonprofit-to-for-profit conversions. But at this point the bill is essentially just a legislative vehicle. The administration, lawmakers, and representatives of state hospitals are negotiating a compromise behind the scenes.

Malloy said he’s comfortable with the current system, where all but one of the state’s hospitals are being run by nonprofit organizations.

“On the other hand, I’m aware of at least in one case, Waterbury specifically, that there may not be a real not-for-profit resolution available so I’m monitoring this on an ongoing basis. So is Mark Ojakian and we’ll continue to discuss with everyone the implications of that legislation,” he said.

Ojakian is Malloy’s chief of staff who oversees the legislative operation.

“This is a rare situation where the not-for-profit and the for-profit, neither of them like the legislation,” Malloy said. “That might mean it’s perfect, but more likely than not it means there’s more work to be done.”

He said the situation in Waterbury is unique.

Waterbury Hospital was the first to start courting for-profit suitors like Vanguard Health Systems, a Tennessee-based for-profit hospital operator that was recently acquired by another Texas-based for-profit company called Tenet HealthCare Corporation.

“For nearly a decade Waterbury Hospital has struggled financially,” Darlene Stromstad, president and CEO of Waterbury Hospital, told a legislative committee earlier this year. “The only year in the past decade we have a positive bottom line was fiscal year 2012 . . . unfortunately that stability was very short-lived and we ended 2013 with a loss of $2.3 million.”

Unlike Yale-New Haven Hospital, Stromstad said her hospital doesn’t have a large endowment to absorb these kinds of losses, especially when 70 percent of the patients are on Medicaid or Medicare.

“We keep chasing a reimbursement level that’s constantly decreasing,” Stromstad said.

She said without this conversion the hospital “will limp along until such time as we can’t.” She said the joint venture with Tenet will give the hospital the resources it needs to survive.

Malloy said the situation in Waterbury may require “nothing less than” a for-profit model to resolve.

In addition to Waterbury Hospital, Tenet Healthcare also has been courted by Bristol Hospital and the Eastern Connecticut Health Network, which operates Manchester and Rockville Hospitals.

Trip Pilgrim, senior vice president of development for Tenet Healthcare, said the only reason they’re still in Connecticut is because hospital boards, local businesses, and local lawmakers want them to be here.

He said his company is offering these financially struggling hospitals a way forward.

He said he can’t understand the legislative opposition to an already cumbersome process through the Office of Healthcare Access. In order to convert, a hospital would have to apply for a “certificate of need” and the attorney general also would have to approve the deal.

Pilgrim said he’s done several of these conversions in several states and the process that already exists in Connecticut is more thorough than the process in some of the biggest hospital mergers he’s done in Texas and Michigan.

Why is there opposition?

“My conclusion is that some people in the state don’t want to see us there,” Pilgrim said Friday in a phone interview. “If you allow a conversion to take place then there must be something wrong with the current process.”

Pilgrim said he’s fine with the current process and would be happy to have his hospital chain measured on both the quality of care and access to that care.

Sharon Hospital, the only for-profit hospital in the state, was able to convert to for-profit through the same process.

“Don’t put up mountains that serve no purpose,” Pilgrim said.

However, some of the state’s healthcare employee unions have expressed concerns.

Barbara Simonetta, president of CT Health Care Associates and represents 550 nurses at Waterbury Hospital, alleged during a public hearing that “Tenet is trying to pad their bottom line by eliminating 30-plus year pensions, cutting jobs, pay, sick time and health care, and more.”

Debra Chernoff, director of policy for SEIU 1199, testified that “because these are entities organized to make profits, we need to ask questions about how those profits will be realized — and at whose expense.”

Unions don’t feel the current law offers the public enough protection. There is another bill that seeks to address some of those concerns.

That bill will require private companies looking to acquire a hospital to enter an agreement to maintain the current pay and benefit rates of the hospital employees, recognize the unions representing employees and honor the collective bargaining agreements already entered into. The legislation also requires the company to maintain the hospitals staffing levels for at least three years.

None of this year’s bills address the question of whether for-profit hospitals should be permitted to employ physicians and engage in the corporate practice of medicine.

House Speaker Brendan Sharkey, D-Hamden, said legislative leaders have been talking and trying to come up with a piece of legislation which includes an appropriate number of controls for these types of takeovers. He said the legislation would encompass more than Waterbury Hospital and “figuring out what the right balance is, is the whole thing.”

He said he’s mindful for the need for greater controls of for-profits ventures, but his bigger concern is that the company is coming from out-of-state and not the “for-profit” status.

“I want to make sure all our Connecticut-based hospital systems are able to grow and thrive,” Sharkey said Monday.

Hugh McQuaid contributed to this report.

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