On October 6, 2010, Massachusetts Attorney General Martha Coakley released a report related to the proposed transfer of the Caritas Christi Hospital System (“Caritas”) to Steward Health Care System LLC, an affiliate of Cerberus Capital Management, L.P. The report (“The Statement”) contains the Attorney General’s analysis – under Massachusetts charitable law and the Attorney General’s role as public charities’ overseer — of its five month evaluation and assessment of the proposed sale of Caritas to Steward, a newly-created for-profit entity, controlled, owned and funded by Cerberus, a private equity fund.
The Attorney General supports the sale, with a variety of conditions designed to protect health care consumers in Massachusetts, and made that recommendation to the Massachusetts Supreme Judicial Court, the ultimate arbiter. (A hearing before Single Justice Spina was held on October 20, 2010.)
The Statement is a comprehensive and informative document that: outlines in detail the facts, factors, law and policy considerations the Attorney General believes are relevant to its determination that a sale (or other disposition, conversion, or in fact any action by a charity and its board) is in the public interest; sets forth a comprehensive outline of the Attorney General’s view of the relevant Massachusetts and fiduciary law standards applicable to the executive team and the board of a charity in making a major decision relating to charitable assets; articulates what it will look to in terms of board actions, policies, participation, and process in arriving at a “business judgment;” offers a comprehensive analysis of this particular transaction and its history and evolution — notable because this transaction does represent a qualitative shift in Massachusetts of nonprofit health care to a private equity-controlled, for-profit enterprise; and, in a 9-page Appendix, explicitly responds to the public commentary it received.
The Statement can serve as a very useful primer or guide to any charitable organization and its board, not just healthcare organizations.
The consequences, predictable and unintended, will be interesting to observe. The challenge, of course, will be in the implementation.