Catholic Hospital Owner Also Owns Connecticut Shooting Rampage Rifle Manufacturer

December 18, 2012

Our prayers at BCI go to the victims of the Newtown, CT shooting last Friday and their families. This horrible tragedy is still weighing heavy on our hearts.

The Boston Globe reported today that guns used to kill people and Catholic hospitals may seem an unusual pairing in an investment portfolio, but not for Cerberus Capital Management.

BCI readers know that Cerberus Capital, a private equity firm, purchased Caritas Christi Healthcare from the Boston Archdiocese back in 2010.  At the time, we knew that Cerberus owned a gun company.  Today we learned that gun company was the manufacturer of the semi-automatic rifle used in Newtown, Connecticut killings last Friday, and Cerberus has now decided to sell their investment in the company.

The Globe reported first the ownership situation this morning:

The New York investment firm that controls the Steward Health Care System hospital chain in Boston also owns the company that makes the semiautomatic rifle that Adam Lanza used to kill 20 children and six adults at Sandy Hook Elementary School in Newtown, Conn., last Friday.

Cerberus is one of the most powerful forces in the gun business. It owns Freedom Group Inc., a Madison, N.C., company that is the nation’s largest seller of firearms and the number two seller of ammunition. Freedom, according to its annual report, sold 1.1 million long guns and 2 billion rounds of ammunition that generated $775 million in sales last year.

Freedom’s chief executive, George Kollitides, worked previously for Cerberus, where he focused on buying companies in the firearms and defense businesses for the firm. Described as a “lifelong hunter, shooter, and firearms enthusiast” on the company’s website, he is also a trustee for the NRA Foundation and serves on several of the group’s committees.

Kollitides led the charge to acquire Bushmaster Firearms Inc. from Windham, Maine, native Dick Dyke in 2006. The gun used in the Newtown shootings, a Bushmaster .223 semiautomatic rifle, contained a 30-round ammunition clip that allowed the gunman to fire continuously inside the school.

That same model Bushmaster was also used in the 2002 Washington sniper shootings, in which 10 people were killed, according to published reports.

Dr. Robert D. Sege, director of ambulatory pediatrics at Boston Medical Center and coauthor of a policy statement on gun control by the American Academy of Pediatrics, said he strongly favors reinstituting the assault weapons ban. If Cerberus is not working for laws to make guns and the community safer, he said, “At the very least it calls into question the overall aims of Cerberus Capital.”

An executive at Cerberus did not return requests for comment Monday, and Ralph de la Torre, chief executive of Steward Health Care, was traveling and unavailable to comment, a spokesman said. An official from Freedom Group could not be reached for comment.

When Cerberus created Steward in Boston, by acquiring the former Caritas Christi hospitals, de la Torre conducted a public relations tour to present Cerberus as the best hope for saving a cash-strapped community hospital group. The Catholic hospital group includes St. Elizabeth’s Medical Center in Brighton and Carney Hospital in Dorchester.

While Cerberus’s wooing of the local hospital group was highly public, its amassing of gun companies was less well known.

If new gun controls are proposed in the wake of the Newtown tragedy, Freedom and Cerberus will have much at stake. In the past, company executives have said in earnings calls that when “political rhetoric heats up,” the furor typically dies down quickly.

But this week, gun critics expressed outrage that a company could both own hospitals and gun makers. “How can you promote good health and unrestricted access to deadly weapons at the same time?” said John Rosenthal, a Boston developer and cofounder of Stop Handgun Violence. “It’s clear to me all they care about is the profit motive.”

Well, the furor did not die down quickly.  This afternoon, the Globe reports that Cerberus plans to sell investment in gunmaker after Connecticut school shootings:

Cerberus Capital Management, the investment firm that controls the Steward Hospital Health Care System hospital chain in Boston, said that it will sell its investment in Freedom Group, the company that makes the rifle that was used in the Connecticut school killings.

“We have determined to immediately engage in a formal process to sell our investment in Freedom Group,” the New York firm said in a statement. “We will retain a financial advisor to design and execute a process to sell our interests in Freedom Group, and we will then return that capital to our investors.”

Together with its gun brands, from Bushmaster to Remington, Freedom is a major contributor to the National Rifle Association and the fight against gun control, according to the Violence Policy Center, a Washington group that tracks corporate funding of gun advocacy.

Reuters reported that pressure mounted on Cerberus as the California State Teachers’ Retirement System (CalSTRS) said on Monday it was reviewing its investment with the private equity firm after the Connecticut school shooting.

Indeed, it does not make sense at all how a firm can promote good health at the same time they are promoting unrestricted access to deadly weapons.  How could they even fathom investing in a company in 2006 that made the weapon used to kill 10 people just four years earlier?  That is Cerberus, which gets its name from the three-headed dog that guards the gates of hell in Greek mythology. We are glad to hear they are selling their investment in Freedom Group. But it is an investment that never should have been made in the first place. With principals of the firm whose code of ethics did not stop them from investing in the gun manufacturer, how exactly are they guiding what remains of the Catholic hospital network.


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.


Boston Catholic Insider Error, More Caritas Questions

August 31, 2010

We usually try to stick to one topic per post, but just wanted to acknowledge a mistake and also get some Caritas news out to you quickly.

First, 8 days have passed since the Archdiocese said they had reached out to bloggers (other bloggers that is, not us) seeking a conversation, and we still have received no response to our Open Letter.  (The Open Letter just lists a few topics for discussion and consideration to help the archdiocese improve how they operate).  Also, 38 days have now passed since our first email to the archdiocese of July 23 asking for an explanation of the conflicts of interest that led to the hiring of the Secretary of Communications and the Chancellor, and we still await a response.

Second, alert reader “John” pointed out an error in our Open Letter that we have since corrected.  We said we were unable to find another schools superintendent in the country paid $325,000/year, as Dr. Mary Grassa O’Neill is paid by the Boston Archdiocese.  We really had not found any higher-paid public or parochial school superintendents, but John did better than us.  He found that the Boston public schools superintendent makes a healthy bonus on top of her base salary of $280,000, putting her at total compensation of $335,000 for administering 56,000 students.  Since the archdiocese serves 43,000 students (about 24% fewer students than Boston), John suggested “on this very generous City of Boston basis, Mary Grassa O’Neill should be getting only $257,876 per year. O’Neill’s earnings should be reduced NOW by $67,124 per year . This would buy quite a bit of school supplies, don’t you think?”  (John’s proposed correction would put Dr. Grassa O’Neill closer to the compensation of the New York Public Schools superintendent, Joel Klein, who makes $250,000/year for managing 1.1 million students in 1600 schools with an annual budget of $17 billion, as well as Ramon Cortines in Los Angeles who also makes $250K/year for directing the second-largest public school system in the country with 694,288 students, 45,473 teachers, 38,494 other employees, 1044 schools, and a total school district budget for 2009-10 of $7.3 billion).  We apologize for the inaccuracy in our previous statement.  As always, if you find something incorrect or any claim you feel is “unfounded,” just let us know and we will adjust accordingly with a public correction.

In followup of the announcement Friday that Caritas Christi is planning to acquire Landmark Hospital in Rhode Island, we wanted to quickly share a couple more Caritas Christi questions for you.

1. If Caritas is in danger of folding w/o Cerberus’ cash infusion, where exactly is the money coming from to buy Landmark?

2. If Caritas Christi is planning to abide by Catholic religious and ethical directives after the acquisition by Cerberus, how do they explain the plan to keep Landmark secular (see Providence Journal report), which includes allowing them to continue doing sterilizations and performing family planning services that violate such directives (see Boston Globe report)?  How does that gibe with Cardinal O’Malley’s March 2009 statement that “Caritas Christi will never…in any way participate in actions that are contrary to Catholic moral teaching…and no arrangement will be entered into unless it is completely in accord with Church teaching.” Are we who question this still “doing a great disservice to the Catholic Church”?

3. Going back a few years, can someone explain how we should reconcile Fr. Bryan Hehir’s emphatic statement in October  2007 that Caritas would never be sold to a for-profit when their financial condition was weak (“The idea that the archdiocese would sell Caritas to a for-profit system – it’s not going to happen,” and now with their financial condition stronger, they are being sold and converted to a for-profit?

4. Since Caritas explored a sale or merger with other Catholic healthcare chains several years ago (including Ascension Health, Catholic Health East, and Catholic Health Initiatives) that would have preserved the Catholic identity and mission, have similar discussions been re-opened and re-explored at this time as an alternative to the Cerberus deal?

5. Has anyone yet explained what the Boston Globe called an “unusual move” by 3 insurance carriers (Blue Cross Blue Shield, Harvard Pilgrim, and Tufts Health Plan) to  fund the Caritas study commissioned by Attorney General Martha Coakley in November 2007 that led to her “roadmap” of recommended changes in governance, which now have set the stage for the Caritas sale and conversion to a for-profit hospital?

6. Was it just a pure coincidence that the Hauser Center at Harvard’s Kennedy School of Government (where Fr. Bryan Hehir works) issued a working paper on “Attorney General Oversight of Charities” in October 2007, and shortly thereafter on November 3, Massachusetts Attorney General Martha Coakley announced she was commissioning a study of Caritas’ governance in order to issue a roadmap for their future?

7. Who from the Archdiocese with solid  business skills and a track record of adherence to the teachings of the Roman Catholic Church is ultimately in charge of decision-making over Caritas Christi today?

You can read more questions about the sale of Caritas in our posts:
Caritas Christi: Is Catholic Healthcare in Boston Being Sold-off for a Few Silver Coins?
Caritas Coincidences? 
Caritas Coincidences: Part 2, and
Trust

Have a blessed day!


%d bloggers like this: