51ºÚÁÏ

Two nuns first established an infirmary in 1888 near Bathhouse Row. Now the hospital sits on a hillside above this valley, providing medical care and helping to stitch together a safety net of other social services.

The city’s largest hospital and largest employer is the centerpiece of Mercy Health's larger footprint in southwest Arkansas. Mercy’s affiliated physicians groups and health clinics serve the city’s 35,000 residents and more in nearby hardscrabble rural areas.

But the health system’s leading role here will soon end if executives at Chesterfield-based are permitted to sell the Hot Springs hospital to the Tennessee-based owners of a rival for-profit hospital across town.

To pull that off, Mercy officials must not only convince federal regulators – who are cracking down on hospital monopolies in smaller cities – but also Vatican officials in Rome. Mercy Health is a corporation, or “public juridic person,� within the Catholic Church.

The future of what locals affectionately call “St. Joe’sâ€� lies in a bubbling stew of healthcare politics, antitrust law, and religious doctrine. And the debate over its fate cuts to the core of the shifting role of the Catholic health ministry in an era of hospital consolidation. In the last year, Catholic health organizations have launched a new wave of sell-offs to for-profit hospital chains.Ìý

Some critics – including Little Rock Bishop Anthony Taylor – call Mercy’s decision to sell its 309-bed hospital in Hot Springs an abandonment of the ministry by the nation’s sixth largest Catholic health system.

Taylor, who leads all of Arkansas’ 137,000 Catholics, will make his case in Rome to Vatican officials against the sale on Tuesday. Mercy’s chief executive, Lynn Britton, has lobbied the Vatican in favor of the sale.

Taylor worries that the hospital buyer’s promise not to provide abortion or sterilization procedures for five years after the sale will be tossed aside in year six, and that the sale will derail the hospital’s commitment to his diocese’s poor.

“Mercy wants to move out of less lucrative markets and into more lucrative markets like the ,� Taylor said in an interview. “The mission of Catholic healthcare is that we ought to seek to be in those less lucrative markets. In a nutshell, that’s the problem with Mercy Health. It has become a business that’s leaving the poor behind.�

Others object on legal and economic grounds. Mercy’s sale to Franklin, Tenn.-based , would hurt Hot Springs residents, many of whom are retirees on fixed incomes, they argue. The merger would leave only one hospital operator in the area, Capella, which would operate both Mercy and the smaller, 166-bed , without market competition. Capella operates 15 hospitals, mainly in the south central United States.

Michael Helm, former chief executive officer of Sparks Regional Medical Center in Fort Smith, Ark., said the merger would raise consumer prices and reduce health services. “It all boils down to money. It has nothing to do with mission,� said Helm, who retired in Hot Springs. “The Religious Sisters of Mercy are forsaking their mission on behalf of the sale of this hospital.�

Mercy's Britton disagrees. “Today is no different than the early days, when the sisters founded the mission in Hot Springs,� he said in an interview. “We need to exist as a business and a ministry. They’re like two wings of an airplane. If they’re not in balance, the plane crashes.�

‘the greater good’

Mercy and Capella executives won’t disclose the purchase price of St. Joe’s, which was recently renamed , and its affiliated assets. Experts estimate the price as somewhere between $160 million and $200 million.

The first casualty of the merger, Helm said, would be the quality of patient care as Capella attempts to consolidate services and cut labor costs.

Mike Wiechart, Capella’s chief operating officer, counters that the merger will instead create “more efficient, effective healthcare,� in part by the cross-pollination of strengths, including St. Joe’s superior electronic medical records.

“We’ve got big plans,� said Wiechart, indicating that Capella intends to offer more specialized care in Hot Springs in the fields of cancer, cardiovascular, neurology, and women’s health.

“The American healthcare system is in a state of transition,� Mercy’s Britton said. “For efficient healthcare, there cannot be a duplication of services.�

Britton said that Mercy had actually hoped to buy the Capella hospital in Hot Springs, but the for-profit chain refused to sell. Britton argued that the sale would not create a monopoly because the market for Mercy’s hospital includes several large hospitals in Little Rock – less than an hour’s drive away.

But in a 2010 market assessment study obtained by the Post-Dispatch, Britton defined St. Joseph’s “service area� as including only six counties with a total population of 195,000 – and not Little Rock. According to Mercy’s study, St. Joe’s “inpatient� market share had grown to 55 percent in 2007, followed by National Park’s market share of 21 percent.

Capella’s Wiechart said the two hospitals are in the “abnormal� situation of having 35 percent more hospital bed capacity than comparable Arkansas communities. And yet one out of five patients leave the hospitals’ service area to get treatment in Little Rock or other nearby cities.

The decision this spring to sell St. Joe’s of Mercy national board member Eric Jackson, who runs a racetrack in Hot Springs, along with those of several board members of Mercy’s local affiliates.

Larry Levi, who resigned from the St. Joseph’s Foundation board of directors, decried Mercy’s increasing corporatization.

“A lot of things changed when the sisters stopped running the system and turned it over to the lay leaders,� Levi said. “The new approach is the Almighty Dollar.�

The pending hospital sale has pinched some nerves here. Jean Reichardt, a desk clerk at the Buckstaff bathhouse, where Babe Ruth and Joe DiMaggio once vacationed, summed up residents’ views of the merger. “Most people don’t like it. Me, I don’t care. I just go to St. Joe’s.�

Jamie Kelly, a waitress at Rolando’s restaurant, said that her family members have been treated at both hospitals, and they rate the care at the Capella facility as superior. “The Mercy nurses are horribly understaffed,� she said. “I’m hoping that the sale goes through – and the care will improve.�

Camille Tackett, a co-owner of the Lazy Hog Saloon, is ready to chuck the whole town’s health care system.

“Hospitals have gotten to be more about the money than helping people,� she said. “I know that all the equipment and tests cost money, but good Lord, I was in the hospital (St. Joe's) for a day-and-a-half and it cost ten grand. I think they’ve forgotten why they’re there.�

Alienating the ministry

When a Catholic order sells – or “alienates,� in Catholic parlance – a property as important as a hospital to a non-Catholic entity, the Vatican must approve the sale. As part of that process, the Vatican asks for the opinion, or votum in Latin, of the bishop in whose diocese the sale will take place.

Before issuing his votum, the bishop pushes hard to ensure that the incoming non-Catholic company abides by Catholic teaching. While Rome always considers the local bishop’s opinion, such sales often still gain the Vatican’s blessing.

In 1997, 51ºÚÁÏ Archbishop Justin Rigali confronted 51ºÚÁÏ University officials over the school’s plans to sell its hospital to for-profit Tenet Healthcare Corp. In an op-ed for the Post-Dispatch, Rigali said that if the sale went through, “it will be impossible for the hospital, after its sale, to preserve all of the values of Catholic health care.â€� The Vatican approved the sale anyway.

One of the stickiest issues for the Catholic church is getting non-Catholic healthcare companies to keep to the promises they make to local bishops, canon law experts say. Capella has promised not to perform abortions at Mercy hospital for five years. “But there’s no guarantee that will happen,� Taylor said.

Taylor said that for 125 years, St. Joe’s has been “the principal face of Catholicism� in a part of the country with a small Catholic population. If after five years the hospital begins performing abortions, he said, “People will link what happens there to the church.�

Taylor said that he’d studied other cities where Mercy had sold hospitals to non-Catholic entities and that in the wake of those sales, “there’s been a negative impact on the poor in those places, so we have to be realistic about what will happen here.â€�Ìý

Before Mercy sold its hospital in Laredo, Tx. in 2003, it provided nearly 95 percent of the health care for the city’s indigent, according to the Laredo Times, writing off $30 million of charity each year to provide hospital care for patients who couldn’t afford it themselves.

Britton said that Mercy Ministries “in those communities where we’ve exited have continued to expand their services and broaden their impact.�

The for-profit buyer in Laredo, Tennessee-based Community Health Systems, made no commitment to follow Catholic dogma on medical procedures such as abortion, said Lucy Cardenas, chancellor of the Catholic Diocese of Laredo. But that didn’t stop the Vatican from approving the sale.

In Hot Springs, despite the company’s Catholic identity and its location within the borders of the 51ºÚÁÏ Archdiocese, Mercy’s sale of its Little Rock hospital is, according to canon law, under Taylor’s authority, not under 51ºÚÁÏ Archbishop Robert Carlson’s. The 51ºÚÁÏ archdiocese, in a written statement, said Carlson "has not been involvedâ€� in the Arkansas sale. Taylor said of Carlson: “I’ve kept him informed.â€�

Taylor contends that Mercy officials violated canon law by not seeking out a better – meaning, Catholic – buyer for the hospital. He also faulted a “lack of integrity in the decision-making process� and called the sale an “abandonment of Catholic healthcare.�

“The original Sisters of Mercy would be rolling in their graves,� Taylor said. “The process required that I be involved from the beginning. Instead, they presented me with a done deal.�

Britton said the bishop “was brought in appropriately … We spent a lot of time with Bishop Taylor, listening to his concerns and offering solutions.�

Monopoly concerns

The Federal Trade Commission, which declined to comment, is examining the merger’s potential effect on hospital prices and services. The FTC, which has opposed other hospital mergers that would create local health care monopolies, is expected to decide by December whether to oppose the sale.

“I’m just an insurance agent in Hot Springs, but I can’t imagine this not being considered a monopoly,� said Bart Newman, who resigned as chairman of Mercy’s hospital system board in Hot Springs. “If you don’t have competition, the prices should go up.�

Average charges at the National Park facility are about double those at St. Joseph’s for various surgeries, as well as hospital inpatient and outpatient services, according to the .

The survey indicates that its charges for cardiovascular surgery average $60,501 at St. Joe’s, and $142,456 at National Park. Charges for orthopedic surgery average $35,853 at St. Joe’s, and $79,238 at National Park.

However, Medicare comprises a large portion of the two hospitals’ business and their federal reimbursements for services are similar.

Earlier this year, the FTC won a victory when a federal judge temporarily halted the merger of two hospitals in Rockford, Ill. The FTC had argued that the merger of two non-profit hospitals – St. Anthony’s and Rockford Memorial -- would result in less competition and increase the cost of care.

Hot Springs doctors who are employed by the two hospitals are reluctant to speak publicly about the merger. But Dr. Jim Arthur, a neurosurgeon who has privileges at both hospitals who was interviewed by FTC lawyers and antitrust experts, believes the sale may result in the loss of advanced medical services. “What bothers us is that some of the programs we’ve established may not continue,� he said, citing radiation therapy as an example. “If the hospitals are OK financially, I see no reason why they can’t continue on. These two hospitals were fiercely competitive.�

According to a Mercy financial report, St. Joe’s and its affiliates sustained operating losses in fiscal years 2008, 2009, and 2010. Britton would not discuss the hospital’s current financial performance or its results for 2011.

Not leaving townÌý

Britton said a portion of the sale proceeds would be used to continue Mercy’s ministry in Hot Springs and to support local charities, but he would not provide financial details. He pledged that Mercy would continue to operate the in Hot Springs, which each year aids several hundred abused and neglected children.

Mercy has also been a prime backer of the in downtown Hot Springs, donating land and financial support to help thousands of adults who do not have Medicaid or private health insurance.

Lynn Blankenship, the clinic’s administrator, worries about losing that support: “The unknown for me is how much of a partner the new entity will be.�

Wiechart said the merger agreement calls for Capella to continue supporting Blankenship’s clinic as well as a pregnancy care center, urgent care services, mobile mammography, and an adult Medicaid clinic. But he did not provide financial details.

In past years, National Park Medical Center has matched the charity care contributions of St. Joe’s – helping an equivalent portion of its patients, and offering a similar amount of free and discounted care to patients in need, Wiechart said. He expects that trend to continue.

In a 2010 cover letter to Mercy’s market assessment study, Britton had thanked Mercy board members, Hot Springs community leaders, and ministry officials for their work. “Together,� he wrote, “we will carry on the pioneering, entrepreneurial spirit of the Sisters of Mercy and blaze our own trail into the future of health care.�

But some of those leaders now say they were blind-sided by this year’s decision to sell the hospital. Britton assures that the merger “was not driven by financial change, but by an awareness of what the community needs.�