AG Objects to Hospital Merger - and CEO Pay

by: Zandra Rice Hawkins

Fri May 21, 2010 at 17:38:38 PM EDT

The planned acquisition had raised red flags for a number of patients and advocates on all sides of the issue. The hospitals cited cost-savings for merging governance and consolidating services, but some DHMC patients, along with organizations like NH ACLU and Planned Parenthood of Northern New England, raised concerns that the merger would risk depriving women and families access to the reproductive health services, support and education currently provided by Dartmouth. This is because, pursuant to the affiliation agreements, Dartmouth OB/GYNs must comply with religious directives in the provision of clinical care in their offices, facilities and hospital.

In the strange bedfellows of opposition to this bill, Catholic laity also came out strong against the merger in concern that DHMC wouldn't adhere to these same directives.

The interested parties teamed up in support of a House Concurrent Resolution, HCR 30, which urged the AG to fully investigate the proposed transaction. Though HCR 30 passed just last week, NH's Charitable Trusts unit had already started looking into the merger and today the AG's office released its findings.

First, the Transaction is not permitted by applicable law. The Transaction would result in DHH obtaining control over core functions of the CMC Charities, which until this point have operated as an independent Catholic hospital. The Attorney General concludes that the Transaction will result in a profound change to the governance structure of the CMC Charities and diminish the fiduciary duties of the Boards of Directors of the CMC Charities which will inhibit the ability of the CMC Charities to carry out their charitable missions. The Attorney General also concludes that Probate Court approval of this transfer of control would be necessary in order for it to be permitted under New Hampshire law.

Second, the Attorney General objects to the Transaction because the Parties have not provided adequate information upon which the Attorney General can determine whether it exercised due diligence in determining whether the Transaction is in the best interest of the health care charitable trust and the community which it services. Specifically, the Parties have not demonstrated due diligence in determining the effect of the Transaction on the cost of delivering health care.

Third, the Attorney General has concluded that while the consideration exchanged in connection with the Transaction constitutes fair value, the Attorney General objects to the Transaction as there are insufficient safeguards in place to ensure that the calculation of the Post-Affiliation Surplus is not subject to manipulation or abuse by the Parties.

It appears that the next step will be for CMC and DHMC, should they so choose, to pursue Probate Court approval to complete the merger, although they would likely have to make additional changes to the affiliation agreement to circumvent the other concerns raised by the Attorney General's office.

In a separate - but extremely interesting note - Delaney and DeLucia also indicated that they would be taking a closer look at non-profit hospital CEO pay across the state after realizing that the salary of CMC president Alyson Pitman-Giles has taken a couple of recent jumps to land at $1.3 million. The AG's office appeared to be quite concerned about this, saying:

"Nonprofit leaders must be aware that they are the stewards of the charitable assets they oversee, and those assets are held in trust for charitable purposes, not individual gain."

The full report includes an interesting chart on non-profit hospital CEO pay.