Terms of Hospitals’ Sale Gives Liabilities to Charitable Foundation
In Spokane, WA, the establishment of a new charitable foundation set to receive the liabilities and proceeds of a hospital system sale is being scrutinized by Protect Our Hospitals Coalition. Original projections of Empire’s, a corporate entity, sale of Deaconess Medical Center and Valley Hospital and Medical Center, to Community Hospital Systems, Inc., had the foundation collecting $100 million, making it the largest grant-making charity in Spokane. However, Deaconess’ continuing financial problems coupled with the national trend towards decreasing the value of hospitals, resulted in the purchase price being renegotiated with the foundation set to receive a projected $80 million. According to an Empire attorney, asking Community Health to absorb Empire’s trailing liabilities, instead of including and funding them through the sale process, would further erode proceeds. The attorney acknowledged that attaching the trailing liabilities to the foundation is an unusual twist to what otherwise is a straightforward asset-purchase agreement between Empire and Community Health. The foundation is also taking on administrative duties.
After the sale of its hospitals, Empire will continue to exist as a corporate entity but will have no assets and therefore will be unable to satisfy pension liabilities or pay for insurance to cover malpractice claims and other debts. Empire’s pension liabilities are estimated at $5.5 million. Both the Deaconess Medical Center and Valley Hospital and Medical Center will no longer be nonprofit, but their nonprofit missions are supposed to continue through the work of the foundation. Community Health plans a 5-year, $100 million upgrade of the hospitals that will include remodeling and investments in technology.
Scott Benbow, a philanthropy legal specialist in San Francisco, criticized the transaction: “I’ve never seen this sort of arrangement…a new foundation should be planning its grant-making, not planning its legal strategy to defend itself.” The foundation is without its own board of directors to fight or vet the liability issues. Benbow asserts that saddling a new foundation with old liabilities is an inappropriate use of charitable assets. Instead, Benbow recommends that if the trailing liabilities carried a maximum sticker price of $20 million, they should be incorporated into Community Health’s purchase agreement.
The Protect Our Hospitals Coalition has asked regulators to safeguard charity care standards, unprofitable essential services, worker pay, job security and the independence of the foundation.
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