The Terms of the Agreement

The first decade of the 21st century was not kind to Caritas Christi, the health care system administered by the Boston archdiocese. Red ink began appearing in profusion in the group’s budget statements. An underfunded pension plan pointed toward still more ominous financial problems in the future.

The Boston archdiocese looked for a partner: a large health care corporation with the capital necessary to put the Caritas Christi hospitals back on a sound financial footing. But even deeppocketed potential buyers were evidently frightened away by the figures. By 2008, with Caritas Christi tottering toward insolvency, the attorney general of Massachusetts—who is legally responsible for oversight of non-profit corporations in the state—felt compelled to intervene.

Under the watchful eye of the attorney general, Martha Coakley, Caritas Christi was restructured. The six-hospital system, which had been owned by the Archdiocese of Boston, became an independent secular corporation with its own governing board. The terms of the new arrangement gave the archbishop of Boston authority over questions involving the religious and moral guidance of the health care system, but the archdiocese would no longer be involved in day-to-day administration of the system.

However, the new legal structure did not eliminate the yawning pension liability. Caritas Christi—the largest health care system in the New England region, with more than 2,000 affiliated doctors, 12,000 employees, and 1,500 hospital beds—remained in financial jeopardy.

A partial solution appeared on the horizon in 2009, when Caritas Christi joined with the Missouri-based Centene Corporation to win a lucrative government contract, providing health coverage for low-income individuals under the terms of a new Massachusetts health care scheme. But Catholic activists protested the plan, pointing out that the state-administered system required coverage for abortion and contraception. After initially defending the plan, and chastising pro-lifers who suggested that Caritas Christi would be making abortion referrals under the state contract, Boston’s Cardinal Sean O’Malley finally decided that the plan could not be reconciled with the Catholic identity of the archdiocesan health care system. The cardinal ordered Caritas Christi to pull out of the contract, just before it was scheduled to take effect on July 1, 2009.

Five months later Dr. Ralph de la Torre, the energetic chief executive of Caritas Christi, had formulated a new plan. He elicited an offer from Cerberus Capital Management, one of America’s largest investment companies. Cerberus—a New York firm whose previous acquisitions had included both Chrysler and General Motors, as well as United Rentals and Remington Arms—offered to buy out the Caritas Christi system for an eye-catching $850 million. Cerberus proposed to set up a new affiliate, Steward Healthcare System, to run the hospitals.

HARD BARGAINING

From a dollars-and-cents perspective the Cerberus offer looked ideal. From its deep reservoir of capital, Cerberus promised to replenish the ailing pension fund for up to $450 million and invest another $400 million to upgrade hospital equipment. The Caritas Christi hospitals—which were now dangerously close to forced closings—would be spared. The management team would remain largely intact, with Ralph de la Torre, the head of Caritas Christi, becoming the top executive of Steward Healthcare System.

But there were complications, too, on the financial horizon. Cerberus is not a health care firm. The New York firm typically buys another corporation, makes the changes necessary to put that corporation on a firmer footing, and then aims to sell at a profit. Doctors, nurses, and union officials in Boston questioned whether Cerberus (or Steward, its new affiliate) would downsize the Caritas Christi operation, cutting staff and/or services to shore up the bottom line. Would jobs be lost? Would one or more of the six hospitals be closed?

Moreover, Caritas Christi was a non-profit corporation: a Catholic charitable venture. Cerberus is a for-profit firm, owned and operated by powerful figures on Wall Street. The proposed sale of Caritas Christi would be the largest transfer of a non-profit venture into a for-profit concern in the history of Massachusetts. For that reason, the sale required the approval of state’s Supreme Judicial Court, which would make its decision based on a recommendation from the attorney general, Martha Coakley.

Fortunately for Caritas Christi and for Cerberus, Coakley was already familiar with the problems facing the health care system, having presided over the restructuring of Caritas Christi just two years earlier. She was also personally familiar with Ralph de la Torre, who had hosted fundraising events for Coakley during her unsuccessful campaign for the US Senate seat that had been vacated by the death of Ted Kennedy.

Still, wherever her sympathies might lie, Coakley had a job to do, and other constituents to satisfy. At public hearings on the transfer, health care workers voiced their concerns about the long-term consequences of the proposed sale. Would Cerberus close hospitals, trim staff, or eliminate medical units? Would the new for-profit management show the same care for needy patients that had characterized the hospitals during more than a century of Catholic management?

In order to satisfy those concerns, Coakley re-opened negotiations on the sale, making further demands on Cerberus. After tough talks that reportedly pushed Cerberus to the brink of withdrawal from the deal, a new bargain was struck. Cerberus had initially made a commitment to keep the hospitals open for at least three years; that commitment was now extended to five years, unless steady losses forced the firm’s hand. Cerberus also agreed not to sell out its stake in the hospitals for at least three years. And to stanch a newly discovered hemorrhage in the pension fund, the New York investors committed another $45 million, raising the overall price to save the pensions to $495 million.

To answer concerns about the hospitals’ services to the community, Coakley extracted a promise that during its first three years of operation, Steward Healthcare would not cut the number of beds in the notoriously unprofitable psychiatric and detoxification wards. The new owners agreed to abide by state regulations governing debt-collection practices at non-profit hospitals. With these new concessions, public questions about the financial viability of the new health care system, and its impact on public services, were satisfactorily resolved. Attorney General Coakley recommended approval of the transaction, and the Supreme Judicial Court authorized the sale.

THE QUESTION OF CATHOLIC IDENTITY

Throughout the public discussion of the Caritas Christi sale, one other question remained stubbornly unresolved: Is there any guarantee that the six hospitals that had once comprised the Boston archdiocesan health care system will remain Catholic institutions?

On paper, the answer to that question is a clear “yes.” All parties to the transaction confirmed their desire to maintain the Catholic identity of the health care system. True, Steward Healthcare is not affiliated with the Boston archdiocese. But since its reorganization in 2008, Caritas Christi had been an independent corporation as well, subject to the supervision of the archbishop only on matters governing the Catholic identity of the hospitals. Steward agreed to be bound by a similar protocol, giving the archbishop of Boston the authority to ensure the system’s compliance with Catholic moral teachings.

At every step in the complicated process leading up to the transfer of assets, Cardinal Sean O’Malley and other archdiocesan officials issued assurances that the sale of Caritas Christi would not endanger the Catholic tradition of health care work in the Boston area. At a hearing on the transfer Sister Marie Puleo, the interim president of Carney Hospital (one of the six Caritas Christi institutions) announced: “The six hospitals have a long history of serving and being part of the community. For all of those years, the Catholic identity has been a source of strength for our community, and it will continue to be.” Even Martha Coakley, in her final report recommending approval of the purchase by Cerberus, noted: “The Catholic identity of the Caritas hospitals will be preserved.”

Still, some Catholic lay activists remained uneasy. Reassurances from Martha Coakley were of little value, they observed. This was the same politician who, during her Senate campaign, had blithely remarked that if Catholic doctors and nurses did not wish to administer abortifacient “emergency contraceptive” pills, then maybe Catholics should not work in hospital emergency rooms.

Reassurances from the Archdiocese of Boston were not much better. Just over a year earlier, Cardinal O’Malley had harshly criticized the pro-life activists who expressed misgivings about the proposed involvement of Caritas Christi in the state’s new health care system, saying that it was a “grave disservice to the Church” to suggest that the Catholic hospitals could become involved in abortion referrals. Eventually the cardinal did pull Caritas Christi out of that agreement, tacitly admitting that the pro-lifers had been right. So now the activists, led by the Catholic Action League of Massachusetts, rallied once more, hoping that they could again persuade the cardinal to prevent a loss of Catholic identity.

Reassuring statements from the management of Caritas Christi were least valuable of all in the eyes of the Catholic activists. This was, after all, the same management team that had sought for and won the contract with the state government, showing no moral qualms about the plan. Ralph de la Torre, the main guiding force behind the proposed sale, had shown his political sympathies by contributing heavily to Martha Coakley, a candidate who supported unrestricted legal abortion, same-sex marriage, and embryonic stem-cell research. Pro-lifers were not ready to accept his word as a surety that the new health care system would promote a culture of life.

Furthermore, in the months since its corporate restructuring, Caritas Christi had taken several clear steps away from its institutional identification with the Church. Crucifixes and photos of Cardinal O’Malley were removed from prominent places on hospital walls. A new corporate logo emphasized “Caritas,” with “Christi” in small print below. The mission statement, which had mentioned “Christ’s healing ministry,” now referred to “the healing ministry of Jesus”—a minor editorial change that would matter only to someone who did not recognize Jesus as the Christ. The word “Catholic,” which had appeared twice in the old mission statement, was not to be found in the elongated new version.

THE ESCAPE CLAUSE

At hearings on the proposed sale, the Catholic Action League repeatedly raised its concerns about the Catholic identity of the six hospitals that would soon be under the management of a secular corporation. At first glance it appeared that these concerns were unjustified. The archdiocesan newspaper, The Pilot, reported:

The recently-signed agreement between the archdiocese and Steward provides that the archbishop of Boston will oversee that the Caritas hospitals run in accordance with the bishops’ directives. The agreement allows the archbishop to have final authority in disputes involving the directives.  The agreement also allows the hospital to maintain its existing ethics committees, and allows the archdiocese to hire its own medical ethicist. Additionally, the hospitals can still provide chapels, employ chaplains, and display Catholic imagery.

As part of its bid to purchase Caritas Christi, Steward Healthcare signed a 19-page “Stewardship Agreement,” which sets out in considerable detail the rights of the archbishop of Boston to supervise the ethical policies of the new health care system and the duties of Steward to comply with the ethical and religious directives set forth by the US Conference of Catholic Bishops. The document—signed by Ralph de la Torre for Steward, and by Cardinal O’Malley for the Boston archdiocese—states that “the continued operation of the hospitals as Catholic health care providers, from a sacramental, social, and moral perspective” was a key consideration in the decision to sell Caritas Christi to Cerberus.

In a letter to the attorney general, summarizing the terms of the purchase agreement, an attorney for Caritas Christi included an entire section on “Preservation of Catholic Identity,” focusing on the directives in the Stewardship Agreement. “The interpretation of the directives, as they apply to Steward under the Stewardship Agreement, will be made by RCAB [the Roman Catholic Archdiocese of Boston] at its sole discretion,” the letter noted. “RCAB’s interpretation of the directives will not be subject to review or approval in the courts or by any other civil law authority.”

The language of that statement is clear, sweeping, and compelling. The archbishop of Boston will retain the unquestioned authority to set moral standards for the Steward hospitals. But in that same letter to the attorney general, the attorney for Caritas Christi let slip the fact that Steward would still hold a trump card:

Steward is permitted to terminate the Stewardship Agreement if compliance with the directives would be unlawful or materially burdensome to Steward or any of the hospitals.… Whether compliance with the directives would be materially burdensome to Steward or any of the hospitals is determined in the sole discretion of Steward.

Under the terms of the transfer agreement, if Steward terminates the Stewardship Agreement, the new management must pay $25 million to a public charity chosen by the Boston archdiocese. But even that extra fee can be waived if “such termination relates to non-compliance with the directives based on legal requirements to which Steward is subject.” In other words, if Massachusetts law requires hospitals to provide services that are incompatible with Catholic moral teaching, Steward will no longer be bound by the Church’s moral guidance.

Even if no such law is passed, Steward can withdraw from the Stewardship Agreement—and bring an end to the era of Catholic health care service in Boston—at its own convenience, whenever it determines that compliance with Catholic moral teaching is “materially burdensome.” The $25 million penalty for that withdrawal is a deterrent, certainly, but not an insurmountable one for a corporation that has already committed $895 million to its new health care venture in Boston.

So to raise the question again, and answer it simply: Is there any guarantee that the six hospitals that had once comprised the Boston archdiocesan health care system will remain Catholic institutions? No.

CASE CLOSED

In July, during a hearing on the transfer of Carney Hospital, James Karam, the chairman of the board of Caritas Christi, disclosed candidly that he had warned Cardinal O’Malley that he could not assure the continued Catholic identity of the six-hospital system. Nevertheless, Karam continued, he strongly recommended the sale to Cerberus, because the likely alternative was a financial debacle that would force the closing of the hospitals, bringing Boston’s flagship health care system to an inglorious end.

Karam’s words of warning to Cardinal O’Malley never found their way into public statements by the archdiocese or Caritas Christi. As the day of the proposed transfer approached, both sides to the agreement insisted stubbornly that the sale would ensure the continuation of the institutions’ Catholic identity. Testifying on October 13 before the state’s Public Health Council in a desperate last-minute effort to stop the sale, C. J. Doyle of the Catholic Action League admitted: “We realize that we are asking much of you—to show more concern for the Catholic identity of Caritas than the Archdiocese of Boston did.”

Doyle’s plea went unanswered. As he waited for the final legal approval of the sale (which would come later in October), Ralph de la Torre—once the hospitals’ overseer under Caritas Christi, soon to become their executive under Steward—took some time away from his work for another venture into political fundraising. He opened his stately home in Newton to President Barack Obama, whose personal appearance raised nearly $1 million in campaign funds for Democratic Senate candidates.