Chicago Business Litigation Lawyer Blog
With all the debate raging around healthcare these days, cases like this one must be particularly harmful to the reputation of companies like Hospital Corporation of America (HCA).
It is common practice for profitable hospital chains to buy community hospitals to convert to profit status. These purchases typically include an agreement for the purchaser to spend money to fix up the community hospitals and spend a certain amount on charitable care in the community.
In 2003, HCA purchased twelve hospitals in the Kansas City area from Health Midwest for $1.125 billion. As part of the deal, HCA agreed to spend $300 million in capital improvements to the hospitals in the first two years and an additional $150 million in the three years after that. The hospital chain also agreed to maintain the levels of care which had previously been provided to low-income members of the community for ten years.
The Health Care Foundation of Greater Kansas City is a nonprofit organization which was created from the proceeds of the sale of the hospital. When they received their first report from HCA in 2004, they allegedly realized the company was already behind in their promised payments.
Of the $300 million that was supposed to have been spent in the first two years, records allegedly indicated that only $50 million had been spent.
HCA’s reports also allegedly indicated that the amount of charitable care provided in their inner-city hospital had fallen while the level of charitable care provided at the more affluent suburban hospital had gone up dramatically.
The foundation repeatedly asked HCA for an explanation but, when they received none, they finally filed a lawsuit against the health care company in 2009.
In the trial, HCA argued that it had met its obligation to spend money on hospitals by building two new hospitals rather than repairing the older facilities. However, Judge John Torrence of Jackson County Circuit Court decided that the agreement had specifically called for improvements to the existing hospitals, not the construction of new hospitals. He therefore ruled that HCA stilled owed $162 million of the $300 million it had agreed to spend between 2003 and 2005. He then named a court-appointed forensic accountant to determine whether HCA had provided the charitable care it had agreed to provide.
In his ruling, the judge said HCA’s own written statements included “differing amounts” of money spent on charitable care. One HCA report said it had provided $48 million in charitable care to the community in 2009 while another report on its Web site claimed that it had provided more than $87 million. The annual report to the foundation, on the other hand, said it had provided $185 million in charitable care that year.
When asked about the widely differing numbers, neither the president of HCA’s Midwest division nor other HCA executives could offer an explanation.
The $162 million will be paid to the foundation, which will use it to create grants to provide care for uninsured and under-insured families in the area. It is unclear whether the spending on improvements for the local hospitals will take place.
But HCA may end up required to cough up even more than the $162 million paid to the foundation, depending of what the court-appointed accountant discovers. Paul Seyferth of Seyferth Blumenthal & Harris, which represents the foundation, speculates that the HCA will “have a tremendously difficult time convincing anybody that they spent what they claim they spent”.
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