Wednesday, September 20, 2006

Goodbye Mercy

The PG is reporting today that UPMC will acquire Mercy Hospital. I once said goodbye to St. Francis which technically went bankrupt in the end. The situation is not the same for Mercy. The intitial news is that Mercy will continue to operate much as it has in the past, but it reminds me of a question I would love to ask: What if (pick any nonprofit hospital system you wish) were to be sold to a private company? Or a corollary: could a non-profit hospital system IPO and if so, how much would it generate and who would get the $$ generated? It's not completely without precedent. Montefiore Hospital was sold to UPMC in the past, with the assets becoming what is now the Jewish Healthcare fund.


Anonymous Anonymous said...

The same happened with St. Margaret's and hospitals on the South Side and in Braddock.

Thursday, September 21, 2006 7:03:00 AM  
Anonymous Anonymous said...

The thing that I'd like to see go into the private sector is the RIDC. Why have the region's most valuable industrial real estate in the hands of a non-profit? Book value of the property is $1 billion. Imagine what the region could do with that to stimulate economic development.

Thursday, September 21, 2006 9:07:00 AM  
Blogger John said...

UPMC is a non-profit health system as well, so there's not as much regulatory oversight in that case over what happens to the "charitable assets." Approval from the Attorney General is more pro forma in these cases than it is in cases where a non-profit hospital is sold to a for-profit system.

There have been numerous examples of non-profit hospitals being sold to for-profit companies in Pennsylvania. Tenet picked up all the AHERF hospitals in Philadelphia in 1998-99. Community Health Systems (CHS) out of Brentwood, Tennesee, now owns six or eight smaller community hospitals in PA that used to be non-profit community hospitals. Essent (also out of Tennessee) bought Greene County Memorial Hospital last year and renamed it Essent Southwest.

I don't know of non-profit health systems that have gone for-profit through an IPO or anything like that. I doubt it's advantageous to them. Large, prosperous health systems like UPMC are thriving while it is smaller, community hospitals that end up getting bought out by the for-profits. What's the incentive for a system like UPMC to go for-profit? Granted, the Health Plan arm is for-profit, but it's more advantageous for the provider side to be non-profit and connected to a university as an academic medical center, the way it is now; that lets them draw down multi-millions in Federal research grants and to keep physicians happy, thereby consolidating market share. And they don't have to pay taxes on their non-profit assets.

Monday, September 25, 2006 11:21:00 AM  
Blogger John said...

Another point: in cases where non-profits go for-profit, there is a "conversion" process whereby a judge decides what happens to the charitable assets, especially all those assets accounted for by the fact that the enterprise in question did not have to pay taxes all of those years. Usually the assets are used to endow new charitable foundations, but there are exceptions.

One big example was Empire Blue Cross, which went for-profit in New York. Over $1 billion in money was available for conversion funds, which eventually went to increased reimbursements to hospitals to fund better wages and benefits for health care workers, most of whom were low-income African-Americans and Latinos. This was because of the strength of the health care workers' union (1199/SEIU) in New York. If something similar happened in Pennsylvania, I doubt that low-income workers would benefit from it, because unions are not as strong here and do not have as much political clout. The Rendell Administration (or any other) would probably be glad to use money like that to help balance the state budget -- as Pataki had been planning to do until the union brought pressure on him and extracted a deal.

Monday, September 25, 2006 11:32:00 AM  
Blogger C. Briem said...

I would differentiate between asset sales via bankruptcy and what I am talking about. I am more curious as to the actual control and ownership of what can only be called equity in some nonprofits.

The NY blue cross example is a good one to look at. There are similar issues here in PA but even thoses are not the same issue per se. BC/BS around the country usually had a unique quasi-public status to being with.

whether there is any incentive to go for profit by one means or another is not so clear? That depends, but it goes directly who who 'own's' the equity and who controls said equity. Lots of other-than-corporate governance issues that really have not been worked through in the US.

but since you brought up UPMC per se.. purely as a thought experiment, what would a Tenet pay for UPMC if the question ever arose?

Monday, September 25, 2006 12:34:00 PM  
Anonymous Anonymous said...

Wouldn't an IPO take it out of the non-profit by virtue of what an actual IPO process does? You in effect transfer ownership from a private to public corporation. Seems like a contradiction.

A breakup and sell-off is more likely.

A follow-up to several NFP hospitals that have come under a for-profit corporation, or are pending is found in

Monday, November 20, 2006 8:27:00 AM  

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