Topeka The people of Kansas will receive no compensation from the sale of a charitable, nonprofit hospital that enjoyed tax-exempt status for more than a century to a for-profit partnership that includes the University of Kansas Health System, Attorney General Derek Schmidt said.
The KU hospital system and Nashville-based Ardent Health Services completed their acquisition Wednesday of the financially troubled St. Francis Health Center in Topeka for a purchase price of $1, plus whatever working capital the hospital had at the time the sale closed.
The deal was allowed to close after Schmidt gave his final OK late Tuesday evening with a letter that said he would not require the buyers to set up a charitable foundation, something that had been done when other charitable hospitals in Kansas were converted to for-profit enterprises.
“The sale of (St. Francis Hospital) is unlikely to produce significant net proceeds since the purchase price is $1 plus net working capital,” Schmidt said in the letter, quoting from a consultant’s report. “Out of those proceeds any remaining liabilities would need to be paid post-closing. Since SFH is a part of (Sisters of Charity Leavenworth), a not for profit health system, any remaining net proceeds would accrue to SCL to promote its charitable mission.”
In addition, assets of the St. Francis Health Center Foundation, a separate institution that was not part of the hospital sale, will be transferred to the Topeka Community Foundation, Schmidt said.
Instead, what Schmidt said the public will get, is a guarantee that the hospital will continue to provide charitable care for the next three years — which includes treating Medicare and Medicaid patients, as well as the uninsured — a guarantee that the hospital, with its workforce of about 1,500 employees, will remain open, and a commitment that the new partnership, Topeka Health System LLC, will infuse at least $50 million in new capital into the hospital over three years.
“The most important community benefit is to maintain health care services in the community,” Schmidt said. “With the stated intention of SCL to close St. Francis Hospital due to its continuing losses absent a sale, maintaining hospital services is a key benefit to the community.”
During a news conference Wednesday announcing the completion of the sale, Ardent President and CEO David Vandewater said the partnership is committed to more than three years.
“That’s something he (Schmidt) wanted to put in the agreement,” Vandewater said. “The fact of it is, we have an obligation to ourselves and to the University of Kansas Health System, as well as just being an operating hospital, we will continue to supply the care that is necessary to this community, and our policy will be exactly the same policy that the University of Kansas Health System has in Kansas City.”
St. Francis Hospital was founded in Topeka in 1908 by the Sisters of Charity Leavenworth, now called SCL Health, and has operated as a nonprofit, charitable hospital since then.
And while Kansas has no specific law, as many other states do, requiring the establishment of a charitable foundation or trust when a nonprofit hospital is converted to a for-profit institution, Schmidt noted how that has been the practice in Kansas for some time.
That practice is based on the idea that the public should be reimbursed for the tax-exempt status that the nonprofit hospital enjoyed, a status that is considered a kind of public investment.
When Wesley Medical Center in Wichita was sold to HCA in 1985, for example, $200 million in proceeds from the sale went to establish the Kansas Health Foundation, which funds research and community-based programs to improve the overall health of Kansans.
An additional $30 million was set aside to establish what is now known as United Methodist Health Ministry Fund, which operates safety-net clinics in some parts of Kansas.
Similarly, in 2003, when Health Midwest in the Kansas City area was sold to HCA, $100 million was set aside to endow the REACH Foundation, which focuses on “advancing equity in health care coverage, access and quality for poor and underserved people.”
The issue of establishing a charitabe foundation out of the sale was mentioned frequently in written public comments submitted to the attorney general’s office while the sale was under review.
“The assets are clearly worth more than $1,” wrote Jane Mackey, of Topeka.
“The patients of Topeka and Northeast Kansas are deserving of having the wealth accumulated by St. Francis Health when it took advantage of its non-profit status for over 100 years placed in a foundation and devoted to charitable purposes,” Harry Craig Jr., of Wamego wrote. “They should not be simply transferred to a for-profit venture headquartered out-of-state.”
Schmidt, however, said the hospital and its assets had effectively been put up for auction, and the market value of the assets was set by the market at only $1. He said that was markedly different from the situation with Wesley Medical Center, which sold for $265 million, or with Health Midwest, which sold for $1.125 billion.
Several people also raised concerns about $250 million that appeared on St. Francis’ books as recently as 2015 as an “account receivable” from SCL, and they asked what happened to that money.
In his letter, though, Schmidt said that as a result of three corporate reorganizations that occurred between 1993 and 2004, SCL exerted “extensive control” over St. Francis’ finances and that the money was no longer available because “the vast majority of those accounts receivable were in fact used for purposes benefiting” St. Francis.