Are we witnessing the death of non-profit hospitals?

Are we witnessing the death of non-profit hospitals?

The state of California has just allowed a hedge fund to get its hands on a former charity hospital chain -- are others next?

For those who worried about the collapse of the Daughters of Charity Health System and its six hospitals in California, the news of a hedge fund investing in the chain is a relief — but over the long term, does it spell trouble for non-profit hospitals?

As we reported recently, California Attorney General Kamala Harris has approved and Daughters of Charity has accepted a $260 million investment deal with BlueMountain Capital Management, marking the largest non-profit hospital transaction in the history of the state. Largely, the reaction was positive, as it saves the financially struggling hospital chain from going under, but people are also concerned about what it means down the road when a hedge fund, which is focused on the bottom line, buys up a Catholic organization that was focused on helping poor people.

Harris had numerous stipulations in approving the sale, requiring them to continue the chain’s mission to help low-income patients, stipulations that scared off a previous hedge fund suitor last year.

But it represents a worrying trend, as the BlueMountain hedge fund would be able to purchase the hospital chain after just a few years, and while the stipulations would require them to keep at least five of the six hospitals open and maintain Medi-Cal contracts and services, those requirements would only last for a decade. After that, BlueMountain has a lot more leeway in what it can do with the hospital, and that might be bad news for low-income California residents.

Unfortunately, there are plenty of things working against non-profit hospitals. As one Modern Healthcare report pointed out, many of these hospitals are losing their tax exemption and coming under increased scrutiny of their non-profit status. Atlantic Health System in New Jersey had it happen to them, and it makes it more difficult for a non-profit hospital to operate.

In addition, non-profit hospitals are having more difficulty funding pension plans due to low discount rates, based on a report from Standard and Poor’s in recent years, which are hurting these hospitals financially, according to a Health Leaders Media report.

And this recent development shows that if the hospitals do run into trouble, there are always hedge funds waiting to snatch them up.

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