Add HCA & Community Health Systems to Arthur Jensen's List

CCA Board Chair Arthur Jensen's world of business needs updating. When Network came out in 1976, HCA was a fledgling for-profit hospital company, trying to do for hospitals what Holiday Inn did for lodging. Community Health Systems (CHS) didn't exist.

In several profit-gasm iterations, HCA went private, then public. HCA's current owner is KKR, a private equity underwriter (PEU). KKR is planning HCA's fourth independent public offering (IPO). This comes after borrowing to pay $1.75 billion in dividends to PEU investors, mostly KKR.

CHS purchased Triad Hospitals, financing the deal with debt. The two buyouts added over $2 billion in interest expense to America's expensive health care system.

How influential are America's for-profit hospitals? A parade of politicians pandered at their annual trade gathering. None mentioned the cost of special dividends, management fees or interest expense. HHS Secretary Sebelius said:

Hospitals know the cost of delaying health reform, and “your leaders have seen the connection between quality and cost,” she observed. She also thanked the FAH and its members for being advocates for fixing the health system, adding that the FAH has “great credibility” when speaking out for health reform.

The man with great credibility is Chip Kahn, FAH's CEO. Chip created the Harry & Louise ads that destroyed health reform in the 90's. Partnering with the devil is a fractal in Obama's health reform, modeled after the Massachusetts experiment.

After three years under the Massachusetts system, Caritas Christi Health System will join Chip's camp. The largest Catholic nonprofit community hospital system in New England will sell out to hell hound Cerberus Capital Management. Chip will add heavy hitters, John Snow & Dan Quayle, to his dark political stable. Other PEU's see health reform as a windfall.

Should they do a remake of Network, add HCA, CHS and PEU's to the AT&T's and Exxon's. The Carlyle Group would not be mentioned in an effort to keep their good name. Arthur Jensen's prescient speech notes the movement of dollars through corporations in a country-less world. Anything else is theater for the masses.

P.S. The parade of pandering politicians included HHS Secretary Kathleen Sebelius, Sen. Bob Corker (R-TN), House Majority Leader Steny Hoyer (D-MD), Sen. Ben Nelson (D-NE) and Sen. Evan Bayh (D-IN)
 

The Curious Case of Caritas Christi's Sellout to Hell Hound Cerberus

The largest nonprofit community hospital system in Massachusetts fought before it switched to Cerberus Capital Management in a proposed sellout. The battle of consultants started in 2008. The skirmish pitted Massachusetts Attorney General Martha Coakley's Health Strategy Solutions vs. Caritas Christi's Accretive Health and Wellspring Partners.

Coakley made her report public. Caritas Christi tried to spin it positively, but their reply read acrimony between the lines. Caritas blamed insurance companies for not sending patients their direction. They cited storied teaching hospitals as monopolistic competitors. Caritas would be a market leader, if accountable care organizations were in place . Against the recommendations of the Coakley report, Caritas announced Carney Hospital would remain full service.

Caritas' 2008 990 shows a $33 million payment to Accretive Health for consulting services (source: Guidestar). The distinguished George P. Schultz, former Secretary of Treasury and Secretary of State, sits on the Accretive board as it readies for an independent public offering. Their top three shareholders are two private equity underwriters (PEU's) and the largest Catholic hospital system in America, Ascension Health. Who knew nuns were in bed with the PEU boys prior to the Cerberus deal? Caritas Christi planned to merge with Ascension Health in 2007, but the deal never consummated.

In 2009 Caritas backed out of an insurance joint venture with CeltiCare, due to Catholic teachings. CeltiCare is a division of Centene Corporation, which has Tommy Thompson and Dick Gephardt as board members. A major Centene shareholder is BlackRock. A week before Caritas backed out of the Centene/CeltiCare deal, the state stopped automatically assigning low income residents who hadn’t chosen a plan to the lowest price option, CeltiCare.

Oddly, Catholic ethics prevented Caritas from putting capital into an insurance company, but allowed the sell out of the whole system. Similarly unusual, the state Attorney General spent millions on consultants to reorganize a nonprofit healthcare system. Did Martha have a role in pulling the plug on automatic assignment to CeltiCare, a looming partner for Caritas?

The week before the merger announcement, Caritas CEO Dr. Ralph de la Torre told state officials:

Without proper reform, a wave of consolidation is likely to hit the health sector, given long-standing distortions in pricing and insurance reimbursement.

Nearly three years of Massachusetts reform couldn't save Caritas Christi health system. As most Obama reforms don't start until 2014, expect more sellouts. Private equity underwriters salivate over the prospect of 30% annual returns in the health arena.

Cerberus' new division will be called Steward Healthcare Services LLC. How did Caritas' current stewards shepherd the deal? News report mention an "extensive process to identify, evaluate and select a capital investor."

Will Caritas senior management or board members receive an equity stake in Steward Healthcare? Surely ex-Treasury Chief John Snow and Vice President Dan Quayle will hold a chunk. How will leaders be compensated in the future, i.e. what promises were made on executive and board compensation?

Nonprofit community hospitals are a public asset. Many prior sales created well funded foundations that benefit the community in their absence. The Carney Foundation is listed as an exempt subsidiary, one of 52 Caritas corporations (12 of which are taxable). What will happen to it?

The announcement said Cerberus would provide $400 million in capital improvements. Projects listed include:

• Increasing the size of our overcrowded EDs (originally built between 1954 and 1972)
• 60% of all inpatients come through the ED
  
  • 103 ED treatment bays serving 150,000 patients per year (an increase of 22 bays)

Wasn't health reform supposed to decrease Emergency Room utilization? Certainly, Massachusetts wouldn't need a 20% increase in ED bays, now that citizens have a medical home. Investing millions in the "most expensive avenue of care" fits with PEU's.

Despite management's angelic pronouncement, it's not clear how those served by Caritas Christi's facilities will benefit from the sale to hell hound Cerberus.

Martha Coakley's office will have to decide. Will a Coakley fundraiser at the home of Caritas' CEO have an impact?

P.S. Martha Coakley's Health Strategy Solutions is now advising First Lady Michelle Obama's employer. Accretive Health's founder sits on the University of Chicago board of directors. It's a cozy, but contentious bunch.

Update 11-14-10:  Martha Coakley and the Vatican approved Caritas Christi's sellout. 

Update 1-26-24:  American Prospect summarized the damage Cerberus and Steward Healthcare did to Massachusetts hospitals.  Steward hired a restructuring advisor and may be headed to bankruptcy. 

Caritas Christi Health System Selling Out to Cerberus Capital

Six days after my post "Will Nonprofit Community Hospitals Make it to 2014?" a large Catholic hospital system in Massachusetts sold out to Cerberus Capital Management, a private equity underwriter (PEU). Note two years under Massachusetts health reform did not help Caritas Christi Health Care, comprised of six nonprofit community hospitals and 13,000 employees.

Caritas will shift to for-profit status. They will pay $7 million a year in property taxes on their two Boston hospitals.

Commenting on the deal is Stuart Altman, health economist and White House adviser on health reform. Stuart is consistent in failing to declare his conflicts of interest.

Turning the system around and making a profit for investors will be a challenge, said Stuart Altman, professor of national health policy at Brandeis University in Waltham, Massachusetts.

Altman clearly stated Cerberus' aim in the deal. Will John Snow, Dan Quayle and the rest of the Cerberus team expect 30% returns like their peer, The Carlyle Group?

A consumer advocate said. “People are often reluctant to turn over their health system to a set of stockholders that are not part of the community.”

White House health reformer Nancy-Ann DeParle has such activity on her resume. Reform is stacked in favor of For-Profiteers, which explains PEU's salivating over health care deals.

What clue did the media miss indicating nonprofit community hospitals were in trouble? The bill renames them "private tax-exempt facilities." Enough to chill your pre-bypass heart.

Caritas has 3,000 employees under the auspices of the Service Employees International Union. SEIU President Andy Stern raised Cain over Carlyle's purchase of huge nursing home provider, ManorCare. His union's 2007 concerns proved hollow.

That fits with Stern's 2006 position that employer sponsored health coverage was "dead and not coming back." How might he partner with Cerberus in shedding that pesky benefit? Dumping responsibility to the individual is clearly part of Obama's health reform.

What Cerberus did for Chrysler, it can do for hospital care. Expect poor quality and lack of innovation. How fast can Caritas bleed dividends back to the parent? How many millions will it charge Caritas in annual management fees? How much will health care costs go up to pay interest on deal debt or taxes as a for-profit entity? How many employees will be shed or benefits cuts as operations are streamlined?

Warning: Sharks are in the waters of safety net providers.

Update: Moody's upgraded Caritas Chriti's bonds in February 2010 citing improved profit margin, debt coverage and cash flow. They noted $235 million in unrestricted cash and investments at the of FY2009. While much can change in six months, this flies against the "cash poor" rationale for the sellout.

Rick Perry "Say No to Washington"

Texas Governor Rick Perry delivered a firebrand speech as the Southern Republican Leadership Conference in New Orleans. He said:

"It's going to take principled leadership. It's going to take men and women going to Washington, D.C. and saying no."

Funny, Perry can't say no to 1001 Pennsylvania Avenue, corporate offices of The Carlyle Group. The Governor adjusted Texas Enterprise Fund contracts with two Carlyle affiliates, Vought Aircraft and Authentix, after both failed miserably on their employment promises.

Vought's failure to provide the promised 3,000 jobs to Texas was compounded by their abysmal record in delivering quality 787 fuselages to Boeing. That was a multi-year failure.

In 2009 Vought estimated it would owe Texas $2.1 million. Their annual report stated:

We reclassified $2.1 million related to the Texas grant to the Accrued and Other Liabilities caption in our Consolidated Balance Sheet due to a potential repayment of grant funds in 2010 based on the agreement.

After Rick Perry rewrote the agreement, Vought paid back a mere $900,000. That's 25% of the original principal at zero interest over 6 years. Perry said we needed to "take care of the job creators," only he's taken care of employment ghost providers. What principle is that?

Perry spoke of a 2003 budget crisis in Texas, one he solved with principles. The state balanced the budget on the back of 200,000 kids who left CHIP. When he granted the $35 million to Vought in March 2004, over 100,000 kids no longer had children's health insurance coverage. Whatever principle this is, it should haunt the cocksure Governor.

Perry spoke about the RSLC host city, a city with ghosts of its own.

"It's been five years since the one two punch of Hurricanes Katrina and Rita."

Hurricane Katrina was the impetus for Carlyle's other abdication, this one by affiliate LifeCare Hospitals. Their New Orleans facility lost 25 patients in the storm's toxic aftermath, the highest death toll of any hospital. This fact was omitted from the White House Lessons Learned report.

LifeCare's corporate offices are in Dallas, as are Vought's. Parent Carlyle charges the two millions in annual management fees. Thus, they have a role in corporate strategy and decision making.

The irony comes from LifeCare's defense in wrongful death lawsuits. They claim patients became wards of the federal government as soon as FEMA evacuation teams set up in New Orleans. This means "say yes to Washington when it means a transfer of losses or liability."

Governor Perry's theatrics are for public consumption. Behind closed doors, he serves his landed friends well. That includes the Carlyle Group brand of Washington, D.C.

Bush League Intelligence with Frances Townsend

Frances Townsend spoke at the Bipartisan Policy Center. C-SPAN televised the intelligence gathering. At the 22:15 mark she said:

The nation understood there was an intelligence failure in 9-11. The nation understood that part of that is we didn't share the information that we had actually collected. The nation chose to forgive its government for that failure, but it had a right to expect it not to make the same mistake again. So, information sharing is really important.

Frances omitted the hospital with the highest patient death toll in her Katrina Lessons Learned report. That was four years after 9-11. She didn't share the information that she had actually collected. Memorial Medical Center lost 35 patients as patients and clinicians suffered in hellish conditions. It's a horrific story with political intrigue.

Citizens had a right to expect government not to make the same mistake again. While Fran spouts platitudes, she didn't live them. It seems to have paid off.

Governor Perry's Texecutive Privilege

Texas Governor Rick Perry proudly announced a $35 million grant to Carlyle Group affiliate Vought Aircraft Industries in February 2004. His press release stated:

"Wiith this commitment in Texas Enterprise Fund money, we are doing our part to leverage a major economic expansion by a valuable Texas employer that will bring 3,000 new jobs to Texas, attract additional employers to our state, and provide the revenue we need to sustain important public investments in areas like education and health care.”

The $35 million check arrived in April 2004. Vought viewed that as a down payment, wanting a bigger deal with the Texas General Land Office. The reported $65 million deal never materialized.

In 2005 the company reneged on plans to shift jobs from Nashville and Stuart, Florida to Texas. The next year Vought laid off 600 Texas workers.

Rather than add 3,000 jobs by 2009, Vought cut 35 positions. That's $1 million in Texas taxpayer money per job lost.

Vought reclassified Texas grant money from "operating" to "financing" activities. Lone Star funds were used to add jobs in South Carolina, the Palmetto State. Vought's 2005 10-Q indicated state grants as a source of capital for 787 Dreamliner production, slated for Charleston.

Vought's major economic expansion happened elsewhere. Funds for important public investments in education and health care weren't generated, despite Perry's promise. The TEF contract obligated Vought to pay back $33 million of the original $35 million under an absolute failure scenario.

The clock ticked past judgment day. Vought's just released 10-K stated:

As of December 31, 2009, we employed approximately 5,900 people.

That's 400 short of its 2009 Texas commitment. Vought stood to refund Lone Star taxpayers $3.3 million plus interest.

Governor Perry rode to the rescue, using Texecutive privilege to lower the bar for 11 companies. Two are Carlyle Group affiliates, Vought and Authentix.

Vought returned $900,000 to the state, roughly 25% of principal at zero interest. It's also 9/10th of a laid off Vought worker. That leaves 34.1 to go. Texas public education and health care could use $35 million in a difficult funding environment.

Instead Vought will hold up to $35 million for 15 years, a sweet deal for a firm whose parent's track record is 30% annual returns. While Governor Perry rails against Washington, D.C., he enriched a D.C. based private equity underwriter (PEU) with public funds. The Carlyle Group's political connections shine once again. The privileged have each other's back. The public con continues.

Update: Rick Perry has competition from the Connecticut Governor, who cut his sweet deal with Carlyle without the legislature. It's Texecutive vs. Conectutive privilege.

Carlyle Group's Vought Aircraft Refunds Texas $900,000

Governor Rick Perry proudly announced a grant of $35 million to Carlyle affiliate Vought Aircraft Industries in 2004. Vought's 2009 10-K states:

As a result of our failure to maintain the required employment levels, we repaid $0.9 million to the Texas Enterprise Fund in 2010. Our failure to satisfy these commitments in the future could result in the requirement to repay some or all of the remaining portion of $35 million grant over the next nine years.

For details on the agreement's history and Vought's abysmal record under TEF, go to PEU Report.