Caritas Christi: Going…Going…Gone!

October 7, 2010

 As expected, yesterday we heard that Attorney General, Martha Coakley, approved selling Caritas Christi to Cerberus, with a few additional restrictions that make the deal less bad but still not all that great. Some readers are asking us for shorter posts, so we will try this time around and see how it goes.

All would probably agree this marks the beginning of the end of Catholic healthcare in Massachusetts. Do you remember Coakley’s comment during her failed U.S. Senate campaign that devout Catholic healthcare workers who abide by Church teachings on abortion and birth control, “can have religious freedom but you probably shouldn’t work in the emergency room“? Well, it looks like the chicken will be coming home to roost on that comment in the not-too-distant future.

Anyway, the 39-page report by the Attorney General’s office makes for an interesting read, and we learned quite a few things from a quick 15-minute review of it, including the 9-page appendix that answers some of the most frequently asked questions. Below we simply will share the high level conclusions of the report, and what we learned, including some disturbing gaps in what initially seemed like a fairly comprehensive assessment.

High Level Conclusions from the Report

“In any transaction involving the transfer of a hospital’s charitable assets to a for-profit entity, the Attorney General’s Office has statutory authority to conduct a review of the proposed transfer. In its review of the Caritas transaction, the Attorney General’s Office found that:
(1) it is impracticable for Caritas to continue to survive in its current charitable form;
(2) due care was followed by the Caritas Board and senior management during the transaction;
(3) the Board and senior management appropriately disclosed and managed conflicts of interest;
(4) the transfer of assets affords Caritas fair value for its assets and operations; and
(5) the transfer is in the public interest.”

What We Learned, Gaps in the Report

1) Impracticable for Caritas to have survived in its current charitable form?

Coakley’s report gives a list of all of the negative aspects of Caritas’ financial position through February 2009, including doom-and-gloom consultant reports, and reduced numbers of patient discharges, patient days, and outpatient surgery volume. These reports indicated Caritas had limited options to stay afloat and also fund pensions and needed facility improvements. We hear in 2009 that consultant Navigant projected Caritas “would default on its existing debt covenants (i.e., less than 30 days cash-on-hand) in less than one year.” You read the report, and it seems like there were no other options and the Cerberus deal sounds like a “white knight.”

But, conspicuously absent from Coakley’s report is one word about how Moody’s and Standard and Poor upgraded their long-term bond ratings on Caritas in late 2009 and February of 2010. In February of 2010, Caritas and the Boston Business Journal reported that Moodys upgraded their long-term bond ratings.

The upgrade reflects the turnaround in financial performance in FY 2009 and our belief that this new level of performance is sustainable. Moody’s said the hospital group has better cash flow to cover its debt service and experienced an upswing in unrestricted cash and its investment position, $235.3 million compared with $172 million at the end of fiscal 2009. Moody’s said its analysis takes into consideration a potential $100 million bond issue during fiscal 2010.

Why is this information from late 2009 and early 2010–which undermines the doom-and-gloom scenarios from the consultants up to early 2009–not mentioned in Coakley’s report? We do not know. Nor do we hear about how Caritas has the cash resources be off acquiring other hospitals like Landmark, and “quietly courting area hospitals about potential mergers” while claiming to be unable to fund their own operations. It makes no sense that Coakley omitted this from her report.

 (2) Due care was followed by the Caritas Board and senior management during the transaction?

The report details the history of trying to merge Caritas with a Catholic hospital chain and/or sell it over several years. Most interesting is how the Caritas Board approved entering into a letter of intent with Vanguard Health Systems to sell most of Caritas assets, and how Caritas and Vanguard Health Systems signed that letter of intent on November 4, 2009. Next thing we hear in the report was they were unable to reach agreement on material terms, including the underfunded pension liability and no-sale period, so the letter of intent was terminated in December 2009 (no exact date provided). The report says Cain Brothers was then engaged to help Caritas explore other options, which meant reaching out to private equity firms. We are told that of five approached, three responded, including Cerberus, and two were pitched in January of 2010.

Apparently no one in the Attorney General’s office read the March 28, 2010 Boston Globe, where the general public was told the deal to sell Caritas to Cerberus was actually set in motion in November of 2009 at the Marriott Desert Springs Resort & Spa in California. [We peg that date as being November 11-15, when Nardelli was a keynote speaker at the Ernst and Young Strategic Growth Forum 2009 at the Marriott Desert Springs]. Maybe the Vanguard negotiation was already problematic a week after the letter of intent was signed, and de la Torre was hedging his bets in case it went south, or maybe the prospect of the deal with the three-headed lion that guards the gates of hell (Cerberus’ symbol) looked better than Vanguard. We just find it curious that Coakley’s report attempts to paint a detailed timeline, but then we find stuff like this omitted that was right out in the public domain.

 (3) The Board and senior management appropriately disclosed and managed conflicts of interest?

 The report does not say anything about Coakley’s own conflict of interest of accepting $34,000 that was donated to her by de la Torre and Caritas executives during her U.S. Senate campaign. Also, folks like friend-of-Martha and campaign-donor-to-Martha, Jack Connors on the archdiocesan finance council, who may want selected Caritas properties for Partners and who gives direction to Caritas board member Fr. Bryan Hehir, were not considered in the report.

Catholic Action League of Massachusetts weighed in saying, 

“Although Martha Coakley deserves some credit for extending the period during which the hospitals cannot be closed, and in trying to ensure care for the indigent, her refusal to address the issue of the termination clause will likely result in the secularization of the six hospitals under the new owners. This means the abandonment of Catholic medical ethics, including the right to life from conception to natural death, the loss of conscience protections for pro-life doctors and nurses, a reduction in charitable care for the poor, and the replacement of Catholic social teaching in employee relations, such as the family wage, with the free market law of supply and demand. Catholics must now turn to the Holy See as the last court of appeal if one hundred and forty-seven years of Catholic health care in Boston is to be preserved.”

What do we think will happen ahead? The SJC and state Department of Public Health will approve the deal. If the Vatican does as well, look for Carney Hospital to eventually close (because the modified agreement says they can do that if it is unprofitable for 2 years), maybe St. Elizabeth’s will close as well, and Jack Connors’ Partners to likely pick-up whichever of the hospitals Cerberus closes or unloads at a great price.  That would leave only two more Archdiocesan assets available for Jack Connors to potentially try and grab—Regina Cleri for Partners and St. Johns Seminary for his alma mater, Boston College.

For now, just start practicing how to say adios, because that is the word we will use to describe what happens to the Catholic identity at Caritas and Catholic healthcare in Massachusetts.

Caritas Coincidences?

August 12, 2010

We had a whole different post planned for today, but with a group now appealing the sale of Caritas to His Holiness Pope Benedict XVI, we need to share what we feel are some rather alarming coincidences with you about the pending sale of Caritas to Cerberus.

Payoffs to Attorney General Martha Coakley?

We all know that the Attorney General has to approve the sale of Caritas to Cerberus.  And we already knew from this March 2010 Boston Globe report that Caritas CEO Ralph de la Torre and other Caritas executives gave more than $34,000 to Coakley during her campaign for U.S. Senate last year. (De la Torre said that he donated to and raised money for Coakley because of her position in favor of national health care reform, but keep reading)  And we knew from this Boston Globe report that a three-hour meeting last November between de la Torre and Robert Nardelli, a top executive at Cerberus Capital Management (which took place at the Marriott Desert Springs Resort & Spa in California) paved the way for the New York-based private equity firm to buy Caritas for $830 million. Here is what we did not know previously.

Robert Nardelli was a keynote speaker at the Ernst and Young Strategic Growth Forum 2009 held at the Marriott Desert Springs November 11-15, 2009. We are told that is where the meeting between de la Torre and Robert Nardelli took place.  No big deal?

Well, by coincidence, 3 days after the conference ended, on November 18, Federal Election Commission records show that de la Torre made a donation of $2,400 to Martha Coakley’s campaign (see picture to the right).  He made another donation of $2,400 on 11/24/2009.  Coincidentally, Justine Carr, Caritas’ Chief Medical officer also made a $2,400 donation to Coakley’s campaign on November 18.  To be fair, de la Torre’s wife, Wing, had made $4,800 in donations earlier in the fall, as had other Caritas officials.  But one cannot help but ask questions about the timing of the conference/meeting where the deal was set in motion and de la Torre’s donations  to the person who would approve the deal.  Why did de la Torre and his Chief Medical Officer coincidentally affirm their support for Coakley with $7,200 in contributions just days after he returned from the meeting with Nardelli that paved the way for the deal?  Was this just a coincidence?

Conflicts of Interest with Partners Healthcare

There are many of these, so we list just a few.

Jack Connors is chairman of the board of Partners, today a competitor to Caritas, but in the future a likely potential acquirer of the best Caritas properties when Cerberus wants to sell them in a few years for a profit.  Connors introduced Ralph de la Torre to the search committee that hired him as CEO of Caritas.  Connors is also on the Boston archdiocesan finance council that approves deals like the sale of Caritas; he helped secure the archdiocese’s former Brighton property for his alma mater, Boston College; he is running the Catholic Schools fund-raising campaign, he is leading the search for the new Secretary for Development, he drove a cabinet reorganization; he was on the Meade-Eisner reconfiguration commission that reviewed and reversed parish closing decisions a few years ago; and he is close friends with Ann Carter of Rasky Baerlein, who played a key role hiring the Chancellor, Jim Mcdonough, who also plays a key role approving the sale of Caritas.  Jack Connor’s advertising firm, by coincidence, hired Mcdonough’s daughter (a recent college grad) as an assistant media planner, even though her previous work experience was just in a short-term job her father helped her get at the archdiocese shortly after the “no nepotism” policy was communicated.  Jack Connors wields a LOT of power in the archdiocese.  He is on the record saying, “The decision of the church to get out of the business is brilliant.”  (Any concerns about the future Catholic identity of Caritas are hardly abated by that statement). According to FEC records, Connors, his wife, and children also gave more than $14,000 to the Martha Coakley campaign last fall.

It is logical to conclude that Ralph de la Torre, CEO of Caritas Christi, is indebted to Jack Connors of Partners for introducing him to the search committee.  Last August, the Globe reported that De la Torre has actually met with Thomas P. Glynn, chief operating officer at Partners several times over the past year to compare notes about managing hospitals in a tough economy.  It is nice that these two guys get together to compare notes, but these discussions between competitors would raise more questions about the possible collusion in planning the future for Partners, de la Torre, and Caritas hospitals that could be sold.  Also, as we reported previously, one of de la Torre’s first management hires after becoming CEO was chief marketing office, Brian Carty, who by coincidence was a former top executive at Jack Connor’s advertising firm, Hill Holliday.

John Kaneb, CEO of HP Hood, is a name we have not mentioned much on this blog, but you may see more of his name.  He has been chair of the archdiocesan finance council and is currently vice-chair.  By coincidence, he is also a trustee of Partners, parent of Mass General and Brigham and Women’s hospitals, where he serves on the board with Jack Connors. So Kaneb would have an interest in whatever benefits Partners in the future.  By coincidence, Kaneb also played a key role on the search committee that picked Ralph de la Torre as the CEO of Caritas, despite a rather obvious conflict of interest he had as Partners  board member. That search committee included Fr. Bryan Hehir’s friend from Catholic Charities, Neal Finnegan, as well as James Karam.  Kaneb is also a part-owner of the Boston Red Sox, and Chancellor McDonough has bragged widely in the chancery to others about being invited to sit in Kaneb’s box at Fenway Park.  (The Chancellor, who has approval input to the Caritas sale, has even used those coveted box seats from Kaneb to reward or induce “good” behavior by key employees).

We are openly calling for Cardinal O’Malley, Jack Connors, Ralph de la Torre, Attorney General Coakley, and the business reporters at the Boston Globe and Wall St. Journal covering this transaction to help publicly answer some key questions first posted via comments in this blog and in our first report on the transaction:

  • What is Cerberus’ internal plan, exit strategy, and timeframe for the Caritas investment?
  • Given the recent financial prosperity reported by Caritas ($30M profit, Moodys upgraded bond rating), why does this transaction need to happen?
  • Why haven’t the full findings of the report by Navigant Capital Advisors on the valuation of Caritas relative to other comparable hospital sales been released to the public? When will it be released?
  • How much of the $830 to $850 million investment publicly announced is expected to come from Caritas current assets, internal funds and future operational profits, and how much is from Cerberus’ own funds?
  • Has anyone representing Cerberus, formally or informally, ever talked to anyone from Partners, formally or informally, about Partners buying selected Caritas hospitals in the future?
  • Has no one with an interest in Partners ever had a hand in determining whether or not Caritas would be sold, to whom it would be sold, for how much, the terms, and what Cerberus will ultimately do with the hospitals? (Actually, given the above, we should probably instead be asking, “Given that many people with conflicts of interest have played a role in the sale of Caritas, how can anyone still pretend this deal should go through?).
  • Why is the Chairman of Partners so involved in making sure Caritas is sold to Cerberus?
  • Why is Jack Connors’ friend Martha Coakley apparently pleased with the whole arrangement when so many others say it doesn’t pass the sniff test?
  • What role has the chancellor, Mr. McDonough, played in making Jack Connors happy about the sale of Caritas (especially given that McDonough’s daughter was hired by Connors’ firm, Hill Holliday and Jack Connor’s friend Ann Carter played a key role in hiring McDonough)?
  • Why hasn’t Martha Coakley enforced her absolute obligation, as constitutional head of the Division of Charities to protect the stakeholders (donors, patients, employees) of these non-profits by detecting, eliminating and punishing those who are wallowing in their blatant conflicts of interest?

Does that represent enough coincidences for one day?

Cardinal O’Malley, are you reading this?  Or should people just fax their concerns directly to the Holy Father and Papal Nuncio?

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