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Health care mergers must receive oversight

By Sen. Allyson Y. Schwartz

The Commonwealth’s long history of nonprofit health care may soon begin unraveling, as it already has around much of the nation. The Allegheny crisis may lead to the first for-profit hospitals in the Philadelphia region and to an exponential increase in the number of for-profit hospitals in the state.

The primary reason this is so troubling is that the bottom line for a for-profit hospital is shareholders’ profits, not the provision of health services to a community. Serious questions are raised by the spread of for-profit hospitals: Will they continue to offer the health services communities need? For how long? Will they offer services that are generally unprofitable, such as care for the chronically ill, AIDS patients and the poor and uninsured? If not, how else will such services be available? Will educational institutions continue to operate? The profit motive at best dilutes the historic commitment to serving the uninsured and underinsured, the disabled, the chronically ill and other vulnerable populations.

But whether Allegheny’s hospitals are purchased by a for-profit corporation or a nonprofit entity, this crisis highlights the turmoil that can be created from any conversion or merger in the health care system. AHERF’s aggressive expansion in the Philadelphia region, effective without any public review and involving huge amounts of public money, has already had severe repercussions.

The public has invested large sums in nonprofit hospitals and health insurers through tax exemptions, community support and charitable contributions. Whenever nonprofit health care entities convert to for-profit or merge with other nonprofits, these public investments—and the benefits they bring to a community—are jeopardized. In the increasing number of complex transactions among health care entities, the potential exists for public assets to be used to support profit-making ventures for the benefit of private individuals.

Add to all of this the potential loss of thousands of health care jobs and physician practices, and weakened economic viability of a community, and you cannot ignore the potential for crisis any time a hospital is acquired or sold.

The role of the Commonwealth must be to insist on scrupulous review and community input in every case. The consequences of sales and mergers of nonprofit health care entities can be so far-reaching and potentially devastating that they demand timely and thorough government oversight. If we fail to insist on painstaking review of each and every one of these transactions, untold billions in public assets could be lost and millions of Pennsylvanians could face reduced access to vital health care.

The National Association of Attorneys General has called on states to be diligent in protecting the charitable assets of nonprofit health care entities. A growing number of state legislatures—now 19—have recognized the far-reaching impact of any transaction involving a nonprofit hospital or health care insurer and have taken action to protect the public interest by establishing rules for oversight of these transactions.

In Pennsylvania, the Attorney General has the broad responsibility to safeguard public assets, and Attorney General Fisher has attempted, so far without success, to fulfill this role with regard to the proposed sale of Allegheny to a for-profit buyer. However, current law gives the Attorney General too much discretion in a number of areas, allowing him, for example, to neglect to call public hearings or order the disclosure of documents. Moreover, the law currently does not give the Attorney General all the tools needed to review these transactions in a timely and effective way. The law is vague, for example, regarding his authority over transactions involving two nonprofit entities and those involving health insurance entities. Pennsylvania needs clear, comprehensive statutory guidelines for approval and oversight of nonprofit health care conversions and mergers.

I have introduced two bills in the Senate, one addressing nonprofit hospitals and the other involving nonprofit insurers. Like the bills Rep. Richard Olasz introduced in the House, both bills define procedures for review and oversight of sales and mergers of nonprofit health care entities. The measures will:

• Clarify and strengthen the responsibilities of the Attorney General.

• Require an analysis of the terms and effects of every conversion or merger, including nonprofit to nonprofit as well as nonprofit to for-profit transactions.

• Allow a deal to proceed only if it meets specific criteria for protecting the public interest, including, among other things, that public assets have been safeguarded for continued community use, the deal will not create an adverse effect on the availability of health care services, and the needs of displaced workers will be addressed.

• Mandate public hearings and timely public disclosure of transaction documents.

• Establish effective enforcement tools to assure ongoing compliance with contractual commitments.

There is much additional work to be done to assure access to quality health services in the Commonwealth. But by requiring public debate and greater government oversight when health care entities convert or merge, this legislation will fill a critical gap. It will strengthen our ability to safeguard hundreds of millions of dollars in state and community investment. And it will help prevent the loss of essential health care services and the livelihood of thousands of dedicated health care workers and their families.

I will be urging my colleagues in the General Assembly to join this effort so that the public’s health care investment will no longer be squandered behind closed doors.

Allyson Y. Schwartz (D-4) is a Pennsylvania state senator from Philadelphia.

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