Trust: Part II

August 3, 2010

We interrupt our Cronyism I, II, and III blog series for a day or so to revisit issues of Trust first touched on a month ago around the sale of Caritas to Cerberus.  At that time, the issue was whether we could believe statements that the Catholic identity of Caritas would be preserved “permanently” and “forever”  because of the $25 million exit clause.  Now we find the ability to trust what we are being told even more tenuous.  

Two days ago we shared that apparently the picture of Cardinal O’Malley had been removed from the lobby of St. Elizabeth and reports indicate that removal of other religious symbols is in process.  A photo posted on another Catholic blog confirms the first part.  So, it feels like it would be prudent for Caritas and archdiocese officials to start acknowledging “the emperor has no clothes” in terms of preserving the Catholic identity in this acquisition agreement.  That does not mean the sale should be blocked–it just means it would be appropriate for officials of the Catholic Church to tell the truth.

Yesterday we learned that the Caritas spokesman, Chris Murphy, apparently falsified his identity to attend a press conference by the newly formed Coalition To Save Catholic Health Care.  Here are highlights from their press release of yesterday.


“An entity within The Archdiocese of Boston is openly distorting the picture the laity is receiving on what surely will lead to the end of their Catholic involvement in health care,” said R. T. Neary of Medfield, Chairman of the Coalition To Save Catholic Health Care. “Furthermore, it is severely damaging the reputation of the Archdiocese itself.” Neary said that the trickery being used in pushing negotiations with a controversial venture capital firm is bringing the continuing lack of ethical/moral public relations to a new low.

A Boston Globe article the following day reported: “Caritas spokesman Chris Murphy, who attended the event at the Omni Parker House in Boston, said most of the group’s complaints were unfounded”. The Globe article quoted Murphy: “The wild speculation engaged in today is absurd.” Neary responded to the article by saying: “Murphy has flagrantly mischaracterized the Coalition, but this is far from the end of the story.”

“What was particularly egregious is that Mr. Murphy had signed in by using a false identity, under a pseudonym,” Neary stated. “And worse still, when greeted by Coalition leaders at the start of the event, he identified himself as a Catholic layman who worked for the Bank of America, and he had come because of his interest in the subject. Mr. Murphy, under his alias, was welcomed”.

“To make matters even worse than that, with regard to his accusatory quote in the Boston Globe, he never asked a single question nor did he challenge any part of our presentation during the one-hour event,” Neary stated. “Not a solitary question, although it was made clear that we were there to be sure our stance was transparent and fully understood. Handouts included letters of strong objection to the Caritas negotiations with Cerberus Capital Management L.P. and its subsidiary Steward, which have been sent to Attorney General Martha Coakley. The Archdiocese, through this Cerberus connection, has embarked on a misguided course, but also it is causing further serious damage to its reputation”, Neary concluded.

So apparently we cannot trust what archdiocesan or Caritas officials are saying.  It seems we cannot trust the Caritas spokesperson, Chris Murphy, to truthfully represent his own identity when he attends an event.  Then Murphy said the concerns about loss of Catholic identity and possible sale of  Caritas properties in the future were “wild speculation” and “absurd.”  Mr. Murphy, is the  removal of symbols of Catholic identity and Catholic imagery still “wild speculation”?    And can you comment on rumors that Caritas has recently brought on a high-powered real estate/property expert from New York with expertise converting non-profit healthcare properties to highly profitable seniorcare housing facilities?  Catholic observers would like to know if the rumor is “wild speculation” and “absurd” that this person has been asked to look at virtually every Caritas property with an eye toward making any unprofitable ones profitable, including by means of converting their use and/or selling them off?  Maybe our sources were wrong.

Oh, one last thing.  Mr. Murphy said “most of the group’s complaints were unfounded.”  Which complaints does Caritas agree were well-founded?

Terry Donilon and Ann Carter of Rasky Baerlein, can you drop a dime to the Boston Globe and ask them investigate this thing further before the Attorney General makes a decision?  The clock is ticking.

Cronyism: Part III

August 1, 2010

Based on the popularity of Cronyism Part I and Part II, we continue the series today with Part III.  We plan to wind down this topic shortly (with a little bit of nepotism next time) to start discussing what these conflicts of interest and the cronyism  cost the archdiocese, parishes, donors, and other stakeholders–and that is where your confidential input will be helpful.  Please see below for how you can help us with some key information.  Now onto Cronyism Part 3, featuring Cabinet Secretary for Education, Mary Grassa O’Neill and Dr. Ralph de la Torre, CEO at Caritas Christi.

Superintendent of Schools, Dr. Mary Grassa O’Neill first caught our attention when people saw her published annual salary of $325,000, making her the highest-paid employee in the Boston archdiocese.  In fact, we have been unable to identify a higher-paid public or Catholic school superintendent in the United States, and she may be the highest-paid administrator of any function in any diocese in the country.  Her school administrative competency is not being questioned here.  But, her salary and her hiring are both subjects of controversy, so first allow us to cover the pay.

The biography of Dr. Grassa O’Neill lists impressive accomplishments, especially in her most recent stint as Milton superintendent of schools from 1993 to 2003, where she raised $100 million to modernize schools and where her annual compensation was about $138,000 in 2003.  (This chart of Mass superintendent salaries says her successor was paid $168K in 2004, an increase of 22% from 2003, so that means Dr. O’Neill was making $138K in 2003).  By means of comparison, blog reader JamesBC commented on July 6:

Joel Klein, chancellor of the NY City public schools [editorial note,  the largest school system in the country], makes $250K/year. They teach 1.1 million students in 1600 schools with an annual budget of $17 billion. Ramon Cortines, the superintendent of the second-largest school system in the country, Los Angeles, also makes $250K/year. They have 694,288 students, 45,473 teachers and 38,494 other employees, and 1044 schools. The total school district budget for 2009-2010 is $7.3 billion. That’s billion with a “B.”  According to this 2007 article, the Boston public schools superintendent makes $275K/year with a $20K bonus if she hit performance-based goals, [According to blog reader, Mike T, that would top out at a max of $303K in 2010. ] They have 56,000 students. This base salary is $70,000 MORE than that of Thomas W. Payzant, who served as superintendent for 11 years.

You can make the comparison yourself vs the Boston archdiocese.  James BC volunteered that “New York and Los Angeles are 15-20X bigger, where the cost of living is arguably higher and the demands of the job vastly greater.”  Boston has 43,000 students (Pre-K-12th Grade) at 126 schools, where Mary Grassa O’Neill makes $325K, a multiple of 2.3X more than in her last school superintendent job and a significant amount more than any other comparable superintendent in the country where published figures are available.

For that $325K/year salary (plus benefits), let us look briefly at how the schools are doing lately and what we are getting.  Catholic school enrollment is down across the country and Boston is no exception. In Boston, 50 Catholic schools have closed or merged in the last seven years. Enrollment was at 153,000 in 1965, at 51,000 in 2005, and at 43,000 for the 2009-2010 school year.  In 2005 we had 153 schools and now it is down to 126.  How are Boston Catholic schools doing these days?  We are not exactly sure.  It would be interesting to know what goals Dr. Grassa O’Neill has been asked to achieve and how is she doing at achieving them.  Is it increasing test score results?  Raising money? Increasing enrollment?  Consolidating parish schools into larger archdiocesan “academy” schools?  Something else?  It would also be interesting to know how the archdiocese assesses whether we are getting our moneys’ worth out of what Dr. Grassa O’Neill is paid, along with the Deputy Director for Academic Excellence, the Associate Superintendent for Academic Excellence, the Associate Superintendent for Administration and Finance, the Executive Assistant to the Superintendent, and other staff.

But enough about salary.  Let us move onto what she did after Milton, prior to landing the job with the Boston archdiocese.  After retiring from the Milton job in 2003, O’Neill was at the Harvard Graduate School of Education for 5 years, as Managing Director for Professional Ed Programs and Director of The Principals’ Center.  At Harvard, she was a short stones throw away from Fr. Bryan Hehir (Kennedy School of Government), Tiziana Dearing (former Exec Director of Harvard’s Hauser Center and outgoing President of Catholic Charities of Boston), and Jack McCarthy (also at the Hauser Center, lecturer at the Kennedy School, and member of the Archdiocesan Finance Council).  We cannot confirm definitively to what extent she  may have caught the eye of any of these individuals, but we do know that Harvard–along with the banking sector and knowing Jack Connors–have proven to be excellent stepping stones to working with the Boston Archdiocese these days.

Finally there is the matter of her hiring.  Sr. Janet Eisner, President of Emmanuel College, headed the search committee that hired Dr. Grassa O’Neill.  (Sr. Eisner co-chaired the Meade-Eisner Reconfiguration Committee that reviewed parish closings a few years back, and she is sufficiently close to Cabinet Secretary for Healthcare and Social Services Fr. Bryan Hehir that he celebrated her 30th anniversary as President Mass this past June).  We have been told that Dr. O’Neill was actually a member of the schools superintenent search committee .   Apparently they did not find a qualified candidate willing to take the role in the first round of the search and at some point Dr. O’Neill was asked to apply for the job.  Assuming that is true, that would represent a novel form of conflict of interest, even for this archdiocese.  Jack Connors (representing the “2010 Initiative”) and Chancellor Jim McDonough would have been the ones who approved her $325K annual salary.

Oh we almost forgot to mention how small a world it really is these days. Archdiocesan General Counsel, Beirne Lovely, started working at the Archdiocese on January 2, 2008.  He is from Milton, and was Chairman of the Milton School Committee who hired Dr. Grassa O’Neill as Milton Superintendent of Schools.  On January 11, 2008, just 9 days after Atty Lovely started at the chancery, the Archdiocese announced they had picked a second Milton resident to lead one of its departments, namely Dr. Grassa O’Neill.  Same neighborhood.  Same parish (St. Elizabeth in Milton).  Same school system.  What a coincidence!  The Pastoral Center in Braintree is starting to feel like Cheers, where everybody knows your name.

At the risk of beating that one to death, let us move onto Dr. Ralph de la Torre, chief executive of Caritas Christi, or Caritas, as they seem to be calling it these days.  When the search was underway for the new CEO of Caritas in early 2008, the search committee had narrowed the field to three finalists when Jack Connors, chairman of the rival hospital network, Partners Healthcare, recommended de la Torre be considered. In April of 2008, de la Torre was hired.  Shortly thereafter, Caritas Norwood’s previous efforts that publicly condemned an unlevel playing field against Partners evaporated. Caritas had previously decried a “medical arms race in which the rich get richer and the poor face extinction competition” and called for action by the attorney general, but after de la Torre started, the Caritas complaints ceased and scheduled interviews with the Boston Globe were canceled.  In December of 2008, de la Torre hired as one of his first management hires, a former top executive of Jack Connors’ advertising firm (Hill Holliday), Brian Carty, in the role of chief marketing officer of Caritas.   If Caritas, or pieces of it, were to be sold by Cerberus, it would not be surprising to see Partners pick up some or all of it in the future. We also know that de la Torre and his Caritas colleagues  and relatives donated more than $34,000 to the senate campaign of Martha Coakley, who as Attorney General, now has critical responsibility for approving the sale of Caritas to Cerberus.  Granted, they may have supported Coakley for other reasons (e.g. her position on healthcare reform) and had Coakley won the seat, she would not be in the position to review and approve the sale.  But, she did not win the seat.  So today she sits with $34K received from Caritas people who have a vested interest in her giving approval for the deal.

We do not question Dr. de la Torre’s medical competence or hospital management competence—he turned a profit of $30 million last year and got the hospital’s bond rating up so they could reduce their debt fees and borrow $100 million to finance improvements, and he negotiated the deal with Cerberus to bring in even more money for the hospital, himself, and his management team.  But De la Torre was paid well–$1.3 million in 2009–for leading the hospital.  And he may become more controversial in Catholic circles based on fears about maintenance of the Catholic identity of Caritas.  Beyond the concerns we and others have reported, numerous reports received indicate that someone in a high position at Caritas has already authorized the removal of symbols of Catholic faith and Catholic identity at Caritas hospitals.  If anyone has photos of the lobby of St. Elizabeth Hospital before and after the portrait of Cardinal O’Malley was removed, please send them our way and the same holds for before/after photos of the statue of the Blessed Mother which has also apparently been removed from the Emergency Room area at St. E’s.  These moves would seem to validate the fears voiced previously.

Lastly, as we move in a few days from cronyism to how the conflicts cost parishes, we would like to ask for your help.  We have received several reports by laity, priests and pastors about concerns in working with the  Archdiocesan Parish Services office, and about real estate sales.  If a parish wants to undertake a renovation or improvement, they get a reasonable estimate from a local contractor, but it has to run through Parish Services, and they usually come back with a different architect or contractor who the parish must work with (apparently another example of cronyism) and at a higher cost as well.  Can you share examples in confidence to us by sending us confidential email via “Contact Us.”  Also, our mention of the former Abington Bank employee turned diocesan Real Estate Director brought emails from people complaining about improprieties in how the archdiocese is selling real estate to cronies of certain people without proper oversight.  We welcome additional specific details if you have them of past sales or properties to watch in the near future. News tips, videos, guest-blogger submissions, and other comments are welcome, and we will always protect the identity of contributors unless you wish to be identified.

True Cross Relic Stolen, Caritas/Cerberus Update

July 14, 2010

We will cover two different topics briefly today–the theft of the True Cross relic from the Holy Cross Cathedral, and a short update on the sale of Caritas to Cerberus. 

Most people have probably heard about the theft of the relic of the True Cross from Holy Cross Cathedral, first noticed on July 1.  This is one of the oldest and most treasured possessions in the archdiocese, and we need to all pray for its return.  Beyond the troubling reality that a priceless relic like this was stolen, a few other aspects of this should raise eyebrows.  First of all, why 12 days pass after the theft was detected before the Archdiocese said something–and only after Catholic blogger, Kelly Thatcher, (Lady in the Pew) posted about this and spread word asking for prayers.  Maybe the police asked that it be kept quiet for a few days in order to investigate in some secretive manner.  But could someone at the $5.5 million/year communications machine of the Archdiocese let us know what other big things they’re working on we haven’t noticed that left them unable or unwilling to respond to the Globe’s diatribe on Sunday and more importantly, tell Catholics about the theft and ask for prayers?  Is someone asking wealthy Catholics like Jack Connors, who the Globe reported is worth $500 million, to establish a reward for the return of the relic?   Where is the passion and urgency in the communications to try and get this back ASAP?  Another blogger said to us, if the Cathedral had money to spend replacing a beautiful ambo that didn’t need replacement, why couldn’t they have installed a security camera or webcam to protect the relic?  Intelligent, “smart” IP video surveillance systems have become very inexpensive, and can remotely watch a location like this and instantly send an alert when something changes in a scene.  Had something like this been in place–costing on a one-time basis a fraction of what the Archdiocese pays Rasky Baerlein for their public relations retainer every month–the theft might have been prevented entirely, or if not prevented, then recorded AND within a minute afterwards, cathedral and security officials could have been alerted.  In addition, we could not help but notice the unusual theological depth to the statement by Communications Secretary, Terry Donilon, “The relic of the True Cross is an important sacramental that helps Christians contemplate the crucified Savior and the great suffering He endured for the salvation of the world.”  Has Terry been taking a theology course in the MAM program, or did someone feed him the quote?  Lastly, this comment on another blog from “TheLastCatholicinBoston” merits reposting: 

It certainly is a very symbolic loss. To think of the martyrdom who died for such causes, and the archdiocese makes a statement after 10 days. They watch the nickels as the priceless is stolen from under their noses. They capture Internet space with Catholic TV and blogs yet can’t keep a watchful eye on the True Cross. The devil’s undercover blood martyrdom of abortion in America is similar – the thief is in our midst, seeking the ruin of souls. 

On to the next topic, Caritas/Cerberus.  Everyone seems to be piling on the bandwagon finally raising concerns publicly.  The Globe had a column on it last week focusing on the likelihood of competition vs smaller community hospitals from a for-profit Caritas.   A couple of pro-life organizations have weighed-in, and we would like to correct a few errors in what these other organizations have written in recent days. The American Life League, in their post, “CERBERUS, HADES AND THE ARCHDIOCESE OF BOSTON” said: 

But we already know that adherence to Catholic moral standards is unlawful for any hospital that participates in the Massachusetts universal health care insurance program (the model for ObamaCare), because the program requires participants to provide abortion, contraception, sterilization, etc. In fact, the archdiocese’s inability to participate in the Massachusetts program is precisely the reason why Caritas is unprofitable and is being sold. So the termination of Catholic standards is inevitable. Why the charade to mislead the public that Caritas will remain Catholic? 

Most of their post is spot-on, the first part of this passage is correct, and there is indeed a charade to mislead the public into believing that Caritas will remain Catholic ahead (as we have reported previously).  But Caritas IS actually profitable, so it’s not the case that the inability to participate in the Massachusetts program is the reason why Caritas is being sold.  

An email from Mass Citizens for Life also gets most of it right, but has a few things wrong or communicates them in a way where people will reach the wrong conclusion.   

The Board of Directors of Massachusetts Citizens for Life has expressed serious concern about a proviso in the sale of the Caritas Christi Health Care system by the Archdiocese of Boston.  The Board urges the Archdiocese to remove this proviso or to work with the buyers to appoint an independent committee consisting of experts in the fields of medical ethics and health care financing, who have proven adherence to the Caritas commitment to life, to fully vet any decision to end compliance with the Ethical and Religious Directives of the United States Conference of Catholic Bishops. 

 Aside from the fact that MCFL didn’t tell people what the concerning proviso is–namely, an exit clause should maintaining the Catholic identity prove “materially burdensome”–MCFL is basically saying to either remove the proviso, or appoint pro-life people to an independent committee who would review a decision to drop the Catholic identity but have no authority to over-ride it.  Removing the proviso should work  but it does not seem like a commitee with no authority to change anything will be able to change anything. 

MCFL further says the following: 

The Steward Health Care System, a subsidiary of Cerberus Capital Management, will be running the hospitals.  Steward has agreed to abide by the ERDs, thus continuing the pro-life commitment of the hospitals.  If, however, Steward decides that compliance with the ERDs would jeopardize the welfare of its patients, employees, or the community it serves, it can pay the Archdiocese twenty-five million dollars to end compliance. 

 This is partically correct.  The agreement says if Steward decides that compliance with the EDRs would become “materially burdensome” (very broadly defined as anything which would “jeopardize the welfare of its patients, employees, or the communities in which it operates,” the determination of which will be in “the sole discretion of Steward”), the system’s Catholic identity could be abandoned upon payment of a $25 million fee to a charity of the Archdiocese’s choosing.   The rest of what MCFL wrote is correct:

The MCFL Board reasons that this escape clause provides inadequate protection to pro-life physicians and patients and threatens the existence of pro-life hospitals in Massachusetts.  It could result in the Caritas hospitals providing abortion and rationing care, thus ending the systems commitment to pro-life principles.

According to Anne Fox, President of the organization, Massachusetts Citizens for Life has always been grateful for the hospitals in the Caritas Christi Health Care system. While MCFL is a non-sectarian organization, having hospitals where patients can go to receive ethical medical care has been very important whether it be a woman with a problem pregnancy or a person who needs food and hydration administered artificially.  Pro-life medical professionals have been able to practice in good conscience. We feel every effort must be made to ensure continuation of these ethical standards




Reaction to Layoffs and Trust

July 7, 2010

Based on the emails we are getting–over yesterday’s Boston Globe puff-piece about mandatory payments from all parishes to the diocese, the Caritas sale, and layoffs–it feels like the archdiocese is in a very tenuous situation right now.  Here is a small sample of what we received in the last few days:

From “Carol”

Two truths:
1.  The Roman Catholic Archdiocese of Boston has no business paying anyone more than $150,000.00, and then only when there is great demonstrated competency.  The schools are going down the drain (Grassa-O’Neill), the chancellor and Mr. Hehir work for Jack Connors (a/k/a Partners and Boston College) and Mr. Donilon, based on his news releases, struggles with English as a written language (e.g. in today’s email about the Wangsness soft-toss, it’s “assess,” not “access” when you’re evaluating parish financial health).  When salaries have benefits and FICA/Medicare employer contributions added in, the top salary is over $350,000.00.  How many people are paid over $100,000?  What’s the total payroll for those people?  What’s the average salary of those paid less than $100,000?

2.  Skimming from parish revenue (offertories, rents and all other donations except bequests) to the tune of about 24% per annum (schools tax + RCAB tax)is just plain wrong.  When salaries in Braintree look more like the paychecks of those giving the money, we can talk.  Parishioners have already caught on and begun plans to find other ways to support their parishes.  Why didn’t the Globe article interview someone besides those whose job it is to sell the plan, and those who were most caustic about parish closings?  There are hundreds of priests (particularly pastors) and thousands of lay people who are saying, “Not so fast.”  The Globe didn’t seek them out it seems.

Meanwhile, why has no one asked what the RCAB spends on heating, plowing, mowing and capital repairs to the not-really-occupied former parish churches?  My guess is $750,000.00 per year, based on what it costs to maintain one parish church — and they are maintaining a half dozen of these places at a residential standard.  Show us the common sense, RCAB, and then maybe we’ll show you the money.

Last, but not least, who would be willing to take the bet that Cerberus has had discussions or some pre-existing agreement with Partners to sell the hospitals in 2012?  $25M is a drop in the bucket to buy off the “Catholic” part of the deal.  How can the cardinal sleep at night?  Or is he asleep all the time?

From “Paul”

What Boston Catholic Insider is doing is a good start, but you guys have barely scratched the surface on the corruption in the Pastoral Center.  Talk to some more chancery workers and pastors.

One of the laid-off staff members has been at the Archdiocese for 30 years; she is the main source of family income as her husband is ailing and they rely on her insurance…all that will be gone in 4 months…Not that the Archdiocese should employ everyone if there is simply no job.  But, hey, J. Bryan Hehir: What about social justice for the little people, not just more big “ideas” to solve the “complex” multi-dimensional problems in our  complex pluralistic society?  Meanwhile, there are at least 20-25 people earning 6-figure salaries, not including benefits.  Not one was laid-off.

The Clergy Retirement Fund has been mismanaged.  Based on what was promised when it was created, it needs more like $200 million to be funded as promised, but what’s a promise anyway?  That is not alot of money when you’re flushing millions down the toilet elsewhere, like for PR, law firm fees, Catholic school superintendent and associate superintendent salaries and at schools to educate mostly non-Catholics (like Pope John Paul II Academy in Dorchester) or  hospitals and charities that are mostly not Catholic any more and will disappear in a few years anyway.  How exactly they will close even a $100 million retirement fund gap is still mostly smoke and mirrors.

The annual report for the year ending June 2009 came out in June of 2010.  The Chancellor is paid $250,000/year and has a $100K+/year administrator and it takes them a year to issue a financial report?  FY 2010 just ended.  People should ask when they will see the 2010 report and all of the supplemental reports missing from 2009 still. Because the Chancellor controls the money, everyone kow-tows to him.

Meanwhile, older priests still in active service have been pushed off private medical plans  onto Medicare at a considerable extra out-of-pocket cost to the priests for office visits and prescription medications. 

 If 1/3 of the pastors stood firm and said they would NOT participate in the new mandatory parish payment program and curtailed the money-flow from parishes to the chancery, that would immediately stop the insanity.   If Boston Catholic Insider has a way to communicate with more priests and pastors, you guys will get an earful, and you should definitely publish what you hear.


July 6, 2010

It has gotten so that one never knows who one can trust any more.  If people use words like “permanently” and “forever,” one naturally would believe that means until the end of time.  But one never knows that will hold in the Boston Archdiocese. 

We leave the discussion of Pastoral Center layoffs and return to the topic of the sale of Caritas Christi because the latest disclosure makes it clear that we do not know who we can trust.   We know we cannot trust the management or spokespeople at Caritas to give us the whole story.  We assumed we could not trust Cerberus because their business is to buy and sell underperforming companies for a profit.  But for a diocese that is priding itself on transparency, it seems that we also cannot trust what Fr. Bryan Hehir, Vicar General Fr. Richard Erikson, or Cardinal O’Malley have said in this matter either. If we cannot trust them to tell us what is really happening with Caritas, then on what other important matters should we also be skeptical?

On April 28, the Boston Globe reported the following, “Christopher Murphy, a spokesman for the network, said the stewardship agreement would be designed to permanently maintain the hospital’s Catholic identity. That is significant because Cerberus may not be the owner for long; the investment firm often buys underperforming companies, turns them around, and then sells them at a profit.

“The main point is that it’s designed to last forever.  That’s the prevailing hope of everyone involved, that . . . the Catholic tradition of Caritas Christi stays in place forever.’’

On Cardinal Sean’s  May 7, 2010 blog, he wrote:

Our conversations between Caritas Christi and Cerberus Capital Management have continued, and it looks very positive. We announced yesterday that an agreement has been reached with Cerberus that ensures the Catholic identity of the Caritas Christi hospitals. The sale is still pending as the Attorney General has to review it, but this stewardship agreement was a key component for us because it will preserve the Catholic identity of Caritas.

The May 14 edition of The Pilot quotes Fr. Richard Erikson saying:

The Stewardship Agreement memorializes Steward’s commitment to maintain the Catholic identity of the Caritas Christi Healthcare system and its fidelity to the mission of the Church’s healthcare ministry.”

The Pilot also quotes Fr. Bryan Hehir as saying,

This is a substantive and structural commitment by the archdiocese and Steward to operate this hospital system by the religious and moral directives of the Catholic Church.”

Diamonds may be forever, but it turns out that Catholic healthcare in Boston is not.  Thursday night the Chair of the Caritas board of directors, James Karam, testified that in fact he cannot guarantee the continuing Catholic identity of Caritas after it is sold to the Steward Health Care System, a subsidiary of Cerberus Capital Management. According to the Catholic Action League of Massachusetts:

Addressing a packed audience in Dorchester Thursday night at a public hearing held by the Massachusetts Department of Public Health and Attorney General Martha Coakley’s Office on the future of Carney Hospital, Karam said he told Cardinal O’Malley that he could not guarantee the future Catholic identity of Caritas, but could guarantee that the hospitals will be closed without the sale.

Karam’s statement contradicted repeated assurances by both Caritas Christi and the Archdiocese of Boston (including some given at the same hearing) that the system’s Catholic identity and mission, and its Catholic medical ethics, would be preserved under the new owners. The Catholic Action League has repeatedly cited the termination clause of the Notice of Transaction — which allows Steward to end the Catholic identity of Caritas at any time for virtually any reason provided it pays just 3% above the purchase price — as evidence that the so-called guarantees are meaningless.

Readers should note that the actual exit clause says they can abandon the Catholic identity for a charitable contribution of $25 million–it does not say “3% above the purchase price.”   Since a “purchase price” has never been disclosed–they only discuss a total investment amount that includes spending from Caritas’ future operating profits and cash assets–to say the $25 million represents “3% above the “purchase price” is not necessarily accurate. 

Also as we said in an earlier post, we do not yet know if the Caritas sale was really necessary to avoid closing hospitals, whether the healthcare system could have continued on its own without the sale, or whether this a good deal or not.  However, Caritas turned a profit of $30 million last year, they had their debt rating upgraded, and a $100 million bond issue planned for 2010 would have given them the funds needed to make most of the same capital improvements Cerberus is funding this year.  

We shared these concerns again with Mr. Karam, Dr. de la Torre, Cardinal O’Malley, and the Attorney General’s office over the weekend.  If we get a  response we will share it with you.

But do not hold your breath waiting.  Even if they respond, we are not sure we can believe whatever  they might say in that response.

Caritas Christi: Is Catholic Healthcare in Boston Being Sold-off for a Few Silver Coins?

June 28, 2010

A number of readers in recent days have asked us to comment on the acquisition of Caritas Christi by Cerberus Capital Management and have shared insider information to help us.  We do not know if this deal is a good one or a bad one for the Archdiocese and Caritas.  When something sounds too good to be true and when the Boston Globe and Massachusetts legislators all say positive things about something the Catholic Church is doing, it is usually reason to be concerned.  So given the stakes—hundreds of millions of dollars in value for Caritas (which the Archdiocese will evidently never see), along with the prospect that Catholic non-profit/charitable healthcare in Boston will end 3 years from now—we feel compelled to report that a lot of questions should be answered publicly before this becomes a done deal.  The final public hearing is Thursday, July 1, at 6pm in Dorchester.  Below is our Top 10 list.  If and when these 10 questions are answered publicly, priests, laity, and politicians will probably find some surprises, but you can be certain that complete answers will not be forthcoming.

1. What is Cerberus’ internal plan, exit strategy, and timeframe for the Caritas investment?

Cerberus is a private equity firm.  They invest money in undervalued businesses, and then sell the businesses a few years later to generate a return on their investment.  They get in and eventually they get out with what’s called an “exit strategy.”  Period.  Leopards do not change their spots.  They are not another hospital chain that wants to operate Caritas forever as part of their business strategy and focus.  Cerberus has an internal investment plan for Caritas, approved by Cerberus’ general partners, that maps out what they plan to invest, how they expect to see the value of Caritas increase, and what they hope to realize in gains when they exit Caritas after some number of years. What is that plan, strategy, and timeframe?

2. What are the financial goals that Dr. de la Torre and the Caritas management team are incented by Cerberus to achieve over the next 3-5 years, and what are the monetary incentives for the team if they hit them?

When the agreement was announced and questions were asked about the financial goals for Dr. Ralph de la Torre, CEO of Caritas, the response was that these goals were still being worked out.  Certainly, by now those goals are known.  What equity stake, if any, do Dr. de la Torre and the management team have in “new Caritas” and what do they stand to make in a future sale of Caritas by Cerberus?

3. Who actually “owns” Caritas Christi?

According to the published investment agreement, the  Archdiocese of Boston sees not one penny from this transaction—all of the funds invested go to Caritas.  It is as though Caritas is owned by Caritas. A reorganization in 2008 changed the governance structure, but it was not stated at the time that the 2008 reorg changed the ownership structure.  Did the Archdiocese ever “own” Caritas?  If so, what happened to change that, what happened to the value of the assets, and when did it occur?

4. What is the actual book valuation of Caritas, and why does the Archdiocese realize none of that value from this sale?

According to a Catholic finance expert we recently consulted, a look at the 2009 annual report by Caritas available at the State of Massachusetts website shows Caritas has a positive valuation of hundreds of millions of dollars, which the Archdiocese will not see as a result of this transaction.  The report lists assets of $924 million, and debts and liabilities of $664 million.  So when you subtract assets from debts/liabilities, you get a net asset value of $260 million.  In other words, hypothetically speaking, if you shut down the system, liquidated investments, paid off debts, and sold off everything (since effectively that’s what will potentially happen to “Catholic healthcare” as we know it in Boston after 3 years anyway), on paper it would be worth about $260 million after all the bills were paid.  But since Caritas generated profits of $30 million last year and could easily generate profits in excess of $50 million annually for the next 10 years ($500 million in profits over 10 years), the present value of the Caritas healthcare system is many hundreds of millions of dollars—perhaps as much as $500M or more.  Take even $50 million of that to subsidize the shortfall in the Clergy Retirement Fund, and you’ve done something really good.  But, the Archdiocese is getting zero.  It is not clear what the net present value of Caritas is, and what aspect of the present ownership structure removes the Archdiocese from any stake in that value.

5. Is the Caritas deal financially a good deal for the Church, and how does it compare to other similar healthcare purchases?

Since this archdiocese already has some experience under-valuing assets it has sold (e.g. sale of St. Mary Star of the Sea in East Boston for $850,000, which was “flipped” and resold by the buyer for $2.65 million just weeks later), it is reasonable to ask if the Cerberus transaction is a bad deal, a fair deal, or good deal for the Archdiocese and Caritas. There’s a short report by a consulting firm, Navigant, engaged for a long time by Caritas to help with their strategic direction which says they did a lot of homework and concluded in one sentence that it is a“fair” deal, but it gives none of the findings or information to justify that conclusion.  Why haven’t the full findings of the report by Navigant Capital Advisors been released to the public? When will it be released?

6. : 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?

$830-850 million in investment sounds awesome—at least at first. So, is that $830-850 million how much Cerberus is spending out-of-pocket to acquire Caritas?  No, not really.  Cutting through the smoke, it’s unclear what the Archdiocese and Caritas are actually netting from this deal.  We know that Cerberus will provide $430-$450 million as “consideration for the assets and operations of Caritas” which will help fund operations and capital projects, assume pension obligations for current and former employees, and pay down Caritas’ debt.

Our finance expert reminded us that no one is mentioning publicly that Caritas has $295 million in “current assets” today, including cash, accounts receivable, and short term investments.  There’s another $208 million in financial assets whose use is limited.  So, straight away, Cerberus is getting their hands on $503 million in financial assets from Caritas when they walk in the door.  Not too shabby.  Does the $830 million to be spent include any of the $503 million already sitting in the bank which becomes a Cerberus asset after the deal is done?  We do not know, but the answer is probably yes.

In addition, Caritas generated $30 million in profits last year and should easily hit $50 million, especially when they do not have to pay interest on $240 million in long-term debt.  So, over the next 4 years, we can assume there is $200 million in profit to also work from. Add $200 million in profit to $500 million in available assets and you have $700 million to reinvest that is right there in Caritas.  Though Cerberus probably will not liquidate all of Caritas’ financial assets and is indeed bringing some new cash to fund operations and capital improvements, the net is that a good part of  the spending of $830-850 million appears to be available already on Caritas’ books.  The agreement says “From the Closing Date until the fourth anniversary of the Closing Date, Purchaser shall cause the Health Care System to spend or commit to spend no less than $400 million” but that money is not coming from Cerberus—it’s designated as coming from the Caritas healthcare system itself—which means existing assets and/or future operating profits.  We are no Warren Buffet when it comes to finance and could be dead wrong here, but in the end, Cerberus may be bringing only about $130-150 million in new funding, not nearly the $830-850 million touted publicly.  That would be only slightly more than the $100 bond issue previously planned by Caritas for this year.

7. If Cerberus fails to make the promised capital investments over the next four years, why does the Massachusetts Attorney General get to choose where that shortfall is donated?

This is the part that makes the least amount of sense of anything in the whole agreement.  Section 8.8b says, “To the extent that, by such fourth anniversary, Purchaser has failed to cause the Health Care System to spend or commit to spend no less than $400 million as provided in Section 8.8(a), Purchaser shall cause the Health Care System to contribute such shortfall to a charitable foundation designated by the Massachusetts Attorney General.”  In other words, if Cerberus doesn’t spend $200 million on improvements they committed to make to the Caritas Catholic healthcare system as part of the deal, Martha Coakley can decide to give that $200 million to the National Rifle Association or the National Organization of Women, or whomever the heck she pleases?  Who died and left Martha Coakley in that position of responsibility?  Why don’t those committed funds go back to the Archdiocese of Boston?  If Cerberus drops the Catholic identity, $25 million goes to a charity of the Archdiocese’s choice, but if they reneg on a couple hundred million of investment in the system, the Attorney General decides where that shortfall goes?  This makes no sense whatsoever.

8. Who is responsible for maintaining the Catholic identity and adherence to Catholic religions and moral directives?

Of the 7 members of the Board of Trustees of the new entity, 5 are Cerberus people, one is the CEO of the hospital (who stands to benefit financially from the whole transaction), and one is president of a real estate development company.  None has any theological training or background listed in their biographies, and several have public records of contributing to campaigns of pro-abortion politicians.  Based on the transaction documents, these are the people who appoint a committee to work on maintaining the Catholic identity–which sounds a lot like the fox picking the animals who will guard the chicken-coop.  Should there not be at least a few people with unquestioned Catholic theological background and judgment named up-front?

9. Does the Archdiocese acknowledge or deny that the Catholic identity for Caritas will likely disappear after 3 years?

A blog at the Wall Street Journal said, “In Hospital deal, How Much is a Catholic Identity Worth: Just 3%.”  Despite comments by Vicar General Fr. Richard Erikson and Fr. Bryan Hehir saying the stewardship agreement “memorializes” the commitment to maintain the Catholic identity of Caritas Christi and represents a strong commitment to operate the hospitals according to Church religious and moral directives, the exit clause that allows Cerberus to pay $25 million to drop the Catholic identity negates what both officials have said.  So, let us be realistic that the proposed guarantees for maintaining the system’s Catholic identity beyond 3 years are lacking in substance and credibility. It feels like the tale of “The Emperor Has No Clothes.”  Everyone says the emperor looks handsome in his new clothes.  Perhaps it would be better to stop pretending this arrangement is something which it clearly is not.

Readers may agree or disagree with the Catholic Action League on their positions and approaches to various issues, but their message on this one seems to merit repeating, just as a reality check:

This impending transfer of ownership means that the future of 150 years of Catholic health care in Boston will be within the discretionary authority of a non-Catholic, for profit, out of state, capitalist corporation.  It is now clear that Caritas Christi will be rapidly secularized, that such iconic Catholic institutions as Carney Hospital and St. Elizabeth’s Medical Center will no longer defend the culture of life, and Catholic and other pro-life doctors, nurses, and administrators will lose their conscience protections.”

This comes just five years after Catholic Charities withdrew from adoption services in Greater Boston.   Beautiful and historic churches are being closed, the parish based Catholic school system is being effectively downsized into ‘consolidated’, lay-governed regional academies, and now the Catholic hospital system, which dates back to 1863, is about to be abandoned.  A two hundred year legacy of Catholicism in Boston, as reflected in an institutional infrastructure, is being systematically dismantled and improvidently discarded.

10. Given the recent financial prosperity reported by Caritas, why does this transaction need to happen?

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.

This assessment would seem to undermine the “cash poor” rationale for the sellout.  Caritas says they need the capital, but Caritas already had a credible plan to raise additional funds for capital improvements via a bond issue . What gives?

We are not saying if the Caritas sale is the right thing or the wrong thing for the Archdiocese of Boston and the Caritas Christi Healthcare System.  At this precarious time for the needy of the state and for the Archdiocese–with layoffs pending, a $25 million shortfall in the Archdiocese’s pension fund and a $100 million shortfall in the Clergy Retirement Fund–this transaction is getting very little public financial scrutiny.  For an archdiocese that talks a lot about transparency, this does not feel very transparent.  We are simply saying these 10 questions should be asked and answered publicly by the Archdiocese, Caritas, the Attorney General, and Cerberus for the sake of the Catholic Church, Caritas employees, non-profit charitable healthcare in Boston and for all stakeholders.

The final public hearing is Thursday, July in at the Local 103 IBEW Hall in Dorchester at 6pm.  All readers concerned about this transaction should make it a point to attend and speak out. See comments by Benhamin for more information on that hearing and about how to submit your opinions.

%d bloggers like this: