The Caritas Christi Health Care System was formed in 1985 to improve Roman Catholic health services in the eastern Massachusetts.
The origins of these services go back to 1863 when Andrew Carney, an Irish immigrant tailor, donated more than $50 thousand to the Daughters of Charity of St Vincent de Paul to support a hospital. Among their patients were indigent immigrants and civil war veterans in need of medical care.
Caritas Christi grew by the turn of this millennium to become a 6-hospital system together with other medical facilities. By fiscal year (FY) 2005 and FY 2006 it was posting profits of over $25 million annually. Profits dropped to around 4 million in FY2007, and a loss was incurred of $20.4 million in FY2008.
There were questions relative to the management of the system, and efforts were made to sell or affiliate with another Catholic hospital group. The CEO resigned with severance pay amid many questions about his personal conduct in the executive position.
In April of 2008 Dr. Ralph de la Torre, a cardiac surgeon and trained engineer was hired as CEO.
Changes in the organizational structure brought profitability back to Caritas Christi, resulting in a $50 million turnaround and a profit of $30 million in FY2009. It is important to mention that, while these figures were for the fiscal year ending Sept. 30, 2009, they were accurately projected at the end of August. The organization was expanding and was involved in updates to all of the hospital facilities, as well.
In the fall of 2009, Dr. de la Torre and his wife hosted a fundraiser in their Newton home for Massachusetts Attorney General Martha Coakley in her U.S. Senate campaign to replace the deceased Sen. Edward M. Kennedy. Caritas officials and others attended, and the de la Torres contributed the maximum allowed by law — a total of $9,600.
In November 2009 Dr. de la Torre met with Robert Nardelli, a top executive with Cerberus Capital Management, a NY-based venture capital firm. By the end of the 3-hour meeting over dinner and drinks, Nardelli was “sold” according to press reports on acquiring the Caritas Christi system.
Notably, no serious effort seems to have been made to seek funds commercially, or from the vast Roman Catholic community in Massachusetts and beyond.
In February of 2010 Caritas Christi announced that Moody’s Investor Service had upgraded the Caritas bond rating to Baa2 from Baa3. The Caritas announcement stated the following: “The upgrade reflects the dramatic turnaround in financial performance in FY2009, and the rating agency’s belief that this new level of performance is sustainable…”
On March21, 2010 the Health Care Bill (Obamacare) passed by 219-212 in the U.S. House of Representatives and was signed into law by President Barack Obama on March 23, 2010.
On March 25, 2010 Caritas Christi Health Care announced that it had signed an agreement to be acquired by a newly created subsidiary of Cerberus Capital Management, Steward Health Care System LLC. It stated: “The transaction will provide the Caritas Health Care system with approximately $830 million of capital support.”
Among the numerous questions that immediately arose was how many dollars would actually be involved. Cerberus, which once had a “feeder fund” for the notorious Ponzi-schemer Bernard L. Madoff, was known for leveraging assets, rather than infusing new capital.
Also, in a 12-page letter on May 5, 2010 Christopher M. Jedrey, an attorney representing Caritas Christi, had stated “Option 2 (affiliating with a national Catholic system) was the best option.” The letter was sent to Attorney David G. Spackman, Division of Charities, Office of the Attorney General.
This change from a not-for-profit 501 (c) (3) to a for-profit entity would create a liability for over $80 million in local and state taxes. This increase would ultimately have to be gained through patient charges.
There was also an escape clause in the contract allowing for a termination of the Catholic identity of the hospital system, with a $25million donation to a designated charity, if after 3 years it was deemed by Steward to be “materially burdensome.” In effect, with this broad loophole, this asset transfer was a 2-step sale of Caritas Christi Health Care system to Cerberus for $25 million.
By Massachusetts law the transfer of assets from a non-profit to a for-profit required approval by the Attorney General of this Commonwealth. That individual, of course, was Martha Coakley.
In June and July of 2010 public hearings were held in the service areas of the six hospitals, and those in politics or with a proprietary interest in effecting the sale/transfer were very much in evidence. The opposition was provided by individuals who raised questions about the validity of the financial data, and the rubber-stamping which seemed to be taking place.
It must be noted that at the last hearing on July 1, 2010 regarding Carney Hospital, James Karam, Chairman of the Board of Governors of Caritas Christi stated that if the deal didn’t go through the hospitals would close. The statement certainly raised further questions, as it was in contradiction of the financial health of the system as depicted by Moody’s, as well as Standard & Poor’s. It certainly seemed designed to picture Cerberus as coming to the rescue.
Dollars had obviously been spent to bring public relations people on board to help sell the public on the benefits accruing to them and the community, if they allow the transfer to sail through the process. Many were not buying this, however, and it led to opponents becoming organized in an effort to reveal the truth behind what was taking place. It led to the formation of the Coalition, which provided organized opposition.
On July 27, 2010 the Coalition To Save Catholic Health Care held its opening press conference in the Omni Parker House, near the State House on Beacon Hill in Boston. The Coalition announced its aim was to terminate the dealings with Cerberus Capital Management, and include a review of all the facts of the proposed sale - with transparency and full disclosure by all of the parties.
Adding to the deception by Caritas officials that had previously been perceived, was the attendance of the Caritas Christi Director of Media Relations at the event. He not only signed in using a false name, but he then proceeded to introduce himself as an interested employee from Bank of America. He failed to ask a single question, and then was quoted in the Boston Globe article the next day with a disparaging quote about the Coalition. A phone call to the reporter verified who he was.
To address a clear conflict of interest, on August 17, 2010, the Coalition requested that AG Martha Coakley recuse herself because of her relationship with Caritas CEO de la Torre. She never responded, but was quoted subsequently in the press as refusing because her connection with CEO de la Torre was “for a different time and place.”
Later, on August 30, 2010, the Coalition requested that the Massachusetts Commission on Ethics request that she recuse herself for the reasons outlined. Despite numerous telephone requests, the Commission did not reply until November 1, 2010 with a refusal to do so. They stated that “after a careful review” they had “decided not to take any further action.”
On October 13, 2010 the Coalition To Save Catholic Health Care had three individuals deliver oral testimony in opposition at the hearing conducted by the Massachusetts Department of Public Health in Boston. They were: R. T. Neary, Chairman, John O’Gorman, Director of Research; and Dr. Helen Jackson, Ob/Gyn.
Later in the day, the 9 members voted, and they unanimously approved the issue of new licenses to each of the 6 hospitals.
U. S. President Barack Obama on October 16, 2010 was the featured guest at a fundraiser for the Democratic Senatorial Campaign Committee (DSCC) at the Newton home of Caritas Christi CEO Dr. Ralph de la Torre. The event reportedly raised $900,000 in political contributions.
On October 18 and October 20, 2010, the Coalition Chairman, R. T. Neary, wrote to Supreme Judicial Court Justice Francis X. Spina delineating reasons for additional research to be done, and requested that any decision on the transfer of assets be deferred.
On October 21, 2010 SJC Justice Spina, the single justice, heard the Caritas Christi v Coakley proposal (SJ 2010-0453). It was video-recorded by Suffolk University Law School. Justice Spina acknowledged receiving R. T. Neary’s correspondence and that he had read its contents as a part of the record. Both Chairman R. T. Neary and Director of Research John O’Gorman were present at the hearing
Attorney Christopher M. Jedrey, representing Caritas Christi, repeatedly referred to a $260,000,000 unfunded pension liability. Justice Spina questioned him for a breakdown of that figure. Attorney Jedrey stated it would be paid at $25 million per year.
Attorney David G. Spackman, representing the Attorney General, stated that the 6 hospitals, even with pension obligations taken away, could not continue “as a stand-alone without access to capital.” When the hearing was brought to its conclusion, it had lasted for 27 minutes.
On October 29, 2010 Justice Francis X Spina of the Massachusetts Supreme Judicial Court approved the proposal to transfer the assets of the Caritas Christi Health Care System to the new Cerberus subsidiary, Steward Healthcare LLC.
On January 11, 2011 in San Francisco Steward Health Care System chief executive Ralph de la Torre told investors that “he plans to take his company’s Massachusetts cluster of hospitals national …”
Coalition To Save Catholic Health Care’s efforts to obtain audited figures from the Attorney General’s office for Caritas Christi in FY2010, which ended Sept. 30, 2010, were unsuccessful throughout most of the year 2011. On two occasions the response was that 3-month extensions had been granted, a total of 6 months further delay.
One phone call to the AG’s office revealed that Attorney David G. Spackman, Chief of Public Charities, was no longer in that position. It was announced publicly that Attorney Spackman had left service with the Attorney General to take a position with the law firm of McDermott, Will and Emery. This was the firm which represented Caritas Christi in the negotiations, and before Supreme Court Justice Francis X. Spina on Oct. 21, 2010 re SJ 2010-0453.
The late release of the audited financial data for FY2010 delayed further research to support the Coalition’s claims that Caritas Christi’s assets should never have been transferred to Steward Health Care LLC.
Steward placed several full-page ads in the Boston Herald in September of 2011, taking credit for hospital improvements which were well underway during the time of public hearings to have the sale of Caritas Christi approved – and well before the approval of the transfer of assets to Steward by the Supreme Judicial Court.
In response to a call in the latter part of September 2011, the Coalition was informed that the audit conducted by Ernst & Young LLC was now available on the AG website under the obscure title of TAS-CC INC, a new designation.
As the Coalition had stated throughout the negotiations, the audit showed that Caritas Christi had not incurred a loss, but that the total assets for FY 2010 were $279,875,000, an increase of $20,139,000 for the year.
The income less expenses reported by the required audit was $16,787,000, and the excess of revenue over expenses for Caritas Christi was $24,693,000. The audited figures were supporting the Coalition’s position.
In dollar value, the major discrepancy revealed in the Ernst and Young audit is the unfounded pension liability, estimated by them to be $163,000,000. This is in stark contrast to the $260,000,000 reiterated by Attorney Jedrey of McDermott, Will and Emery who represented Caritas Christi at the October 21, 2010 SJC hearing.
Justice Francis X. Spina had accepted Attorney Jedrey’s figure, but in the audit Ernst & Young estimated it to be $97,000,000 less. The independent auditor did not respond to two faxes by the Coalition regarding the discrepancy.
Reductions to the bottom line for Caritas Christi FY2010 were also observable in an increase of Depreciation and Amortization of over 15% and with the Provision for Bad Debts, which had a similar increase.
A letter was sent to Supreme Court Justice Spina on Nov. 30, 2011, outlining the Coalition’s findings, and requesting a thorough, independent investigation of the entire negotiations and approval process. There was no response to the Coalition’s request in 2011.
On January 3, 2012, believing that there had been a sufficient time interval, a call was made to the Supreme Judicial Court for information. Coalition Chairman R. T. Neary was told that it is general practice not to respond, and that further action could only be requested by either the Attorney General or Caritas Christi, the two parties to the case.
Since neither of the parties to the case has been cooperative in the Coalition’s efforts, and we have experienced deception amid many discrepancies with regard to the financial data, other avenues must be pursued in 2012.
From its inception the Coalition To Save Catholic Health Care has made a pledge to its supporters to correct this serious injustice, one that has been perpetrated on good-faith donors. It will now be pursued at the Federal level.
This entire history is fraught with violations of fiduciary obligations, deception, financial misstatements, and conflicts of interest. A chronology of the events is available from the Coalition To Save Catholic Health Care in order to provide media documentation.
Donors to this 149-yr old Roman Catholic non-profit hospital tradition were completely absent from consideration. Financial and political gains by individuals were foremost throughout the negotiations.
The discrepancies revealed by the long-delayed Ernst & Young audit are glaring, and they substantiate what the Coalition To Save Catholic Health Care has maintained throughout. Nothing short of a thorough, completely independent investigation of the events, statements and actions by all parties, and financial data involved in the transfer of Caritas Christi Health Care’s assets to the new Cerberus entity is acceptable. This is imperative. The Coalition’s efforts will not cease until a thorough investigation takes place, and justice is established.
Corporate entities from two states, New York and Massachusetts, were involved. We believe criminal fraud has taken place, and that there was collusion between the two parties involved in the case (SJ 2010-0453) before the Supreme Judicial Court of the Commonwealth of Massachusetts on September 21, 2010.
A criminal investigation must be opened, and the transfer of the assets of the Caritas Christi Health Care System to the Cerberus subsidiary must be nullified. ###
Coalition To Save Catholic Health Care,
R. T. Neary, Chairman
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The Coalition to Save Catholic Health Care — a summary of their efforts by Chairman Ray Neary, assisted by John O’Gorman.
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