Why Oppose the DKH – Covenant Sale?
Perhaps most egregiously, the pledge to maintain current services is demonstrably and grossly false since, as a Catholic institution, Covenant admits that it is obligated to insist that health care procedures that are banned by the U.S. Conference of Catholic Bishops Ethical and Religious Directives for Catholic Health Care Services (ERDs) cannot be provided by DKH. Under the current 6th edition of the ERDs banned procedures include virtually all reproductive health care, important aspects of end-of-life care, and other valuable and cherished health care services that have been made possible through the advancements of science and not devotion to religious doctrine. One might also wonder what other health care will be similarly banned in future editions of the ERDs.
o Ethical and Religious Directive of the US Conference of Catholic Bishops
o National Health Law Program ERDs What the 2018 Update Means for Catholic Hospital Mergers
o The High Cost of Merging with a Religiously-Controlled Hospital
- Unavailable Referrals and Lack of Access
DKH and Covenant counter that services banned at DKH will remain available from other health care providers who are not similarly subject to the ERDs. This is no substitute for providing health care locally to local communities, particularly regarding patients who understandably otherwise view DKH as a reliable provider of their health care needs. Many patients, particularly those of limited means, may be unaware of the availability of banned health care from other sources, and the ERDs make it difficult if not practically impossible for a DKH professional to actively direct or refer a patient to an alternative provider of banned services without jeopardizing his or her employment by and privileges at DKH. Further complications include the possibility that the alternative provider might not be in network under the patient’s health plan, or, as is quite common in Windham County, the patient has no reliable or affordable access to private or public transportation to and from that provider.
o Referrals for Services Prohibited in Catholic Hospitals
o Tubal Ligations in Catholic Hospitals
- Women’s Healthcare and Lost Revenue
Although DKH now claims to create “a holistic model that covers the full spectrum of health care needs within a woman-centered approach” if the Covenant sale is completed, almost all reproductive health services will be prohibited by the ERDs. Reproductive health, and contraception specifically, are the needs that drive women to seek healthcare. The loss of these patients may mean that between 6000-10,000 women and girls will have to find this healthcare outside of the DKH system. Not only will this result in lost revenue, but women are the primary decision makers and are seen as the “chief medical officers” in their families. They will exit the system and take with them health services for testing, maternity, pediatric, and other family care, essentially creating a slow loss of patient revenue and eventually services, hastening the decline of the healthcare system entirely.
- Financial Conditions
One cannot deny that DKH has been in less-than-ideal financial condition for more than a few years. In recent years this has been true as well for a majority of health care systems statewide and nationally including some of the largest. It should be noted that DKH has at least been marginally operationally profitable in recent years that were not overwhelmingly impacted by covid-19, while Covenant has sustained operational losses in four of the last five years. DKH’s status as the only health care system within reasonable traveling distance for much of its service community arguably has been and will continue to be a funding advantage. In essence, DKH may be viewed as almost a public utility, providing services that, if it were to go under, would need to be replicated by government to assure continuing access to essentially basic human services. This has been born out recently in the naming this summer of DKH as the recipient of a $5 million state grant to help ameliorate the financial impact of covid-19. One can only speculate whether that grant would have been made by the State of Connecticut to a facility owned and operated by an out of state religiously affiliated health care institution.
o CT Office of Health Strategy Annual Report on the Financial Status of Connecticut’s Short Term Acute Care Hospitals for Fiscal Year 2021
It has not been seriously argued that bankruptcy is in the cards for DKH if the acquisition by Covenant is not consummated. The claim has been made by DKH only parenthetically in the initial application for a CON stating almost universally to the board, corporators, and the community that closure was the only option. Nor has it been even meaningfully argued, much less shown, that chapter 11 bankruptcy would mean substantial curtailment of DKH operations.
- Pension Plan Liability
Covenant has not promised to contribute any funds to the resolution of DKH’s outstanding pension plan liability. Quite the opposite, Covenant places a cap on any such contributions it would make ($1 million) and insists on being able to walk away from the Affiliation Agreement transactions if the pension plan liability is not settled.
- Electronic Health Records (EHR)
DKH faces Center for Medicare and Medicaid Services (CMS) penalties if it does not upgrade its electronic health records (EHR). DKH to date has not specified to OHS, the media, the community or the corporators in any useful detail what such upgrades might consist of, when such upgrade must be made to avoid or mitigate such penalties, the amount of such penalties, whether or not temporary waivers of such penalties have been or may be granted, or what efforts (such as retention of an expert advisor) have been made to assist in identifying and costing a suitable upgrade other than the EPIC solution offered by Covenant. How does one know whether non-compliance with CMS standards for some period of time could be acceptable financially or otherwise, or whether a substantially less expensive EHR solution would serve the purposes of DKH if the acquisition hadn’t made it necessary to efficiently connect with Covenant’s existing EPIC system?
- EPIC EHR
DKH has made much of Covenant’s commitment to use “commercially reasonable efforts” and to “work in good faith” to cause the upgrade of the existing DKH EHR with an instance of Covenant’s putatively high-end EPIC brand EHR to be obtained from a third-party vendor, all for an estimated cost of $35 – $40 million. Since the cost will be reflected on DKH’s financial statements going forward ($7.8 million annually), EPIC’s premium price compared to other EHR products, while impressive, would likely be a significant long term drag on DKH financial results that may cause Covenant to view various DKH services or even DKH as a whole as less than an ideal recipient of funding for operational needs, much less for capital improvements. Finally, there is no provision in the agreement to make DKH whole if, for whatever reasons, Covenant’s good faith efforts at EHR conversion are less than successful.
Human Resource Losses
- Treatment of Staff
The acquisition cannot be defended in terms of maintaining, much less improving, the situation regarding DKH’s dedicated staff, most of whom were not provided by management with even a hint of the proposed acquisition until ten months after the Affiliation Agreement was signed. Covenant’s promise of no aggregate loss of DKH jobs will apply only for 6 months. DKH has indicated that individuals wishing to obtain access to birth control would do so through a secondary plan that is administered directly through Aetna and independent of Covenant’s group health plan. There would be no additional cost, but after the transition, employees could only enroll at hire or in the open enrollment periods. The secondary insurance covers birth control (as required by the Affordable Care Act) but likely will not cover other reproductive rights access such as fertility treatment or gender affirming care.
- Local Employment
80% of DKH staff live in the region and support its economy with their wages. Covenant has advised the State that it plans to substantially downsize local employment by centralizing elsewhere human resources, information technology, finance, risk management, legal services, physician practice administration, philanthropy, medical interpreter services, quality management, patient financial services, provider credentialing, employee training, marketing, corporate communications, and commercial insurance contracting. It states in its "Second Completeness Letter" that planned for FY 2023 (if the acquisition is approved) 50 employee positions will be lost at DKH and transferred to Covenant in Tewksbury or outsourced to Ohio. In 2024, an additional 14 positions will be eliminated at DKH. In both years DKH plans that if there are patient volume increases there would be a modest increase in FTE positions (8 in 2023, 16 in 2024).
Service Loss and Lowered Clinical Quality
The acquisition cannot be justified in terms of improving our clinical outcomes, as the three Covenant hospitals all rank lower in universally recognized third-party measures of clinical excellence.
The Covenant hospitals (St. Joseph Hospital Nashua NH, St Mary’s Health System, Lewiston ME, St Joseph Healthcare, Bangor ME) are not accredited by The Joint Commission. This is the standard accreditation that demonstrates health care and quality. DKH is accredited.
Each Covenant Hospital has lower scores on quality measures of the Centers for Medicare & Medicaid Services.
Each Covenant hospital has lower scores on national patient safety ratings by Leapfrog.
o The Joint Commission DKH Accreditation
o CMS DKH
o Leapfrog Safety Grade DKH (A)
o Leapfrog Safety Grade St Joseph - Nashua (B)
o Leapfrog Safety Grade St Mary (B)
o Leapfrog Safety Grade St Joseph - Bangor (B)
The acquisition cannot be defended based on a pledge by DKH and Covenant to maintain virtually the full line of health care services currently provided to DKH’s patients. Besides the fact that no promises have been made as to the level of financial and other support that must or even should be given to various services, whether individually or in the aggregate, the pledge also contains an explicit caveat that the pledge will not apply to services that are determined to not be “financially viable” (such determination presumably being made by Covenant, since they will exercise complete control of operations).
Local Influences on Operations
The acquisition cannot be defended as maintaining meaningful local influence on DKH operations. The DKH board and its CEO will be chosen solely by Covenant, and no longer by corporators who, presumably, will no longer be needed. All decisions of the DKH board of directors will be subject to override by Covenant’s board of directors in their sole discretion. If Covenant’s overall fiduciary obligations to its many health services providers as a whole call for action that is unfavorable to DKH’s service community, can Covenant be expected to nonetheless forego taking such action if the DKH board of directors or CEO objects? To make matters worse, Covenant is left free to sell DKH to a third party if the transaction is approved by the DKH board of directors which, as we have seen, will be totally controlled by Covenant.
Representation vs. Reality
DKH has been seeking a “white knight” capable of providing assistance that will eliminate the financial uncertainties that our local health system shares with most other health care institutions, including the very largest. Covenant Health, an out-of-state Catholic health system, has stepped into the breach, offering to “partner” with DKH to provide the resources DKH needs to “preserve and enhance services, protect jobs and invest in new technology.” An “Affiliation Agreement” has been signed with Covenant and an application filed with the State for issuance of a Certificate of Need (CON). If the CON is issued, DKH Corporators will be called on to vote the transaction up or down. The parties’ CON application and a dedicated DKH website purport to provide ample justifications for this transaction. Do they represent reality, or are they perhaps largely corporate “spin”?
ASSERTION – It’s a Partnership. The transaction described in the so-called Affiliation Agreement with Covenant (let’s call it the “Takeover”) is consistently portrayed to our community as an entirely benign “partnership” whereby Covenant selflessly provides resources enabling DKH to continue redefining itself and exemplifying excellence in healthcare delivery.
FACT – It’s an Acquisition. While we share this high estimation of DKH’s performance to date, it is disingenuous to portray the Takeover as anything other than what has been unambiguously admitted to the State – complete transfer to Covenant of the ownership and control of DKH. That hardly qualifies as a mere partnership.
ASSERTION – Local Representation Will Be Continued. We are assured that, as has long been the case, DKH will continue to be “guided” by a Board comprised of community leaders that are representative of our service area.
FACT – No Meaningful Local Control. Currently, DKH board members are elected by the corporators who volunteer to represent and protect the interests of the local community, and the board, in turn, hires the CEO. After the Takeover, all DKH board members will be hand-picked and removable solely by Covenant, as will DKH’s CEO. Covenant will be able to override any DKH board of directors’ decision. If Covenant’s fiduciary obligations to its many other health services providers call for action unfavorable to DKH’s service community, Covenant cannot be expected to forego taking such action just because DKH objects. Covenant’s control is so total that it is empowered to sell DKH to a third party (perhaps even to a for-profit business) if the transaction is approved by the Covenant-controlled DKH board of directors.
ASSERTION – Services Will Be Preserved and Enhanced. Supporters of the Takeover Deal pledge that DKH will maintain the full line of health care services currently provided to DKH’s patients.
FACT – Services Easily Cancelable. Besides the fact that no promises have been made (or are expected to be made until after completion of the Takeover) as to the level of financial and other support that must or even should be given to various services, whether individually or in the aggregate, the pledge also contains an explicit caveat that the pledge will not apply to services that are determined not to be “financially viable.” Since Covenant or its captive management at DKH will have complete control over what and how much support will be given to the maintenance of any particular health care service, it is easy to envision how Covenant will have substantial control over what and when particular services will be terminated as being not “financially viable”. To add further uncertainty as to what services may be cut, we are told that women's and children's services will be continued “consistent with the delivery of these services by Covenant's other hospitals”. The three Covenant hospitals have already limited such health care: St. Mary, Lewiston, ME, closed maternity and women’s health services, July 22, 2022; St Joseph, Nashua, NH, does not offer contraception or infertility treatment; St Joseph, Bangor, ME, offers no Ob/Gyn services except women’s health screening.
FACT – Clinical Performance Will Suffer. All three Covenant hospitals rank lower in universally recognized third-party measures of clinical excellence. Further, an often ignored but inevitable consequence of enforcement of Ethical and Religious Directives on acceptable health care is the effect it has on retention of physicians who universally are educated in and swore to uphold evidence-based medicine. DKH already has witnessed the flight of a rock star OB-GYN practitioner. How many other valuable medical professionals will follow?
FACT – The Assertion Blatantly Ignores Religious Banning of Many Health Care Services. Because Covenant is a Catholic institution, restrictions imposed by the directives of the U.S. Conference of Catholic Bishops will be enforced at DKH. Banned health care will include abortion, fertility treatments such as IVF, all birth control methods, including emergency contraception pills and sterilization (vasectomy and tubal ligation), some miscarriage management and ectopic pregnancy techniques, and end of life patient intentions that contradict the Bishops’ directives.
ASSERTION – Religious Banning of Healthcare Services Is not Important Because Those Services Generally Have not Been Provided by the Hospital in the Past.
FACT – Delivery of Services in Physicians’ Offices Would Be Significantly Curtailed. Health services that will be banned after the Takeover are being provided in abundance in the offices of the hospital’s affiliated physicians, including vasectomies (83% performed in physicians’ offices) and contraception medication and intervention, through Ob/Gyn, internal medicine or family practice physicians. Most women of reproductive age (65%) use contraception and 46% of all women 18 and older have an annual visit with an Ob/Gyn. After the Takeover, this will all be lost business. Further, emergency treatment of ectopic pregnancy, miscarriage, and sexual assault now generally provided in the hospital Emergency Room will be restricted causing risk to the health and life of women.
ASSERTION – Religious Banning of Healthcare Services Is not Important Because Those Services Will Be Available From Non-DKH Providers.
FACT – Referrals of Banned Health Care to Non-DKH Providers Will Be Critically Curtailed, Ultimately Jeopardizing DKH’s Patient Base. Once the Takeover has been completed, DKH referrals of religiously banned services to other providers will largely cease, with two significant consequences. To the extent that patients do not seek banned services elsewhere (whether due to finances including health insurance coverage problems, inadequate transportation, lack of information, work conflicts, etc.), patients will be greatly harmed, particularly those in low income or discriminated categories. On the other hand, to the extent that patients do find alternative sources for banned services, they are quite likely to shift their family’s other health care business from DKH as well. This is particularly likely concerning women patients turned away by DKH regarding reproductive health services who largely control health care decisions for themselves, their children and even spouses. In either case, DKH will be substantially harmed, since patients who receive care directly from DKH providers, or at least from other providers with the active assistance of their DKH providers, are clearly more likely to stay loyal to their established primary care or specialist physicians than patients seemingly unaccountably abandoned in their hour of need.
ASSERTION – Jobs Will Be Protected.
FACT – Jobs Will Be at Risk. 80% of DKH staff live in the region and support its economy with their wages. Covenant has advised the State that it will examine centralizing elsewhere human resources, information technology, finance, risk management, legal services, physician practice administration, philanthropy, medical interpreter services, quality management, patient financial services, provider credentialing, employee training, marketing, corporate communications, and commercial insurance contracting, essentially and substantially downsizing local employment. It will charge DKH $18 million for these off-site “benefits”.
Covenant’s promise of no aggregate loss of DKH jobs will apply only for 6 months, perhaps just enough time to figure out who to fire. DKH’s filings with OHS indicates that in the first year of the acquisition it will eliminate 50 jobs at DKH with jobs being outsourced to Tewksbury and Ohio with further position eliminations in the next two years. Although it projects that some new positions will be added as the result of “volume increases” it does not state its plan for accomplishing this.
FACT – Employee Benefits Will Be in Jeopardy. Covenant is required by the Affordable Care Act to offer insurance for birth control, sterilization, and emergency contraception but not for abortion, fertility treatments, or gender-affirming care.
ASSERTION – Covenant Will Provide for Investment in New Technology.
FACT – Funding of Capital Expenditures Not Clear. Covenant promises to cause 2% of DKH net revenues to be invested in unspecified capital improvements, but only during the first three years after completion of the Takeover. Further, this does not necessarily imply new cash infusions by Covenant as such investment could be funded instead by decreasing other DKH expenditures.
ASSERTION – Covenant Will Save DKH From Federal Regulatory Disaster by Providing the EPIC Electronic Health Records System (EHR).
FACT – Provision of EPIC Is Not Assured. Covenant does not promise to provide EPIC, but rather only to use “commercially reasonable efforts” and to “work in good faith” to do so. Covenant expects to provide DKH with EPIC software, but it will charge back the cost to DKH approximately $8 million per year to pay for this conversion.
EPIC’s premium price compared to other EHR products would likely be a significant long term drag on DKH financial results. This may cause Covenant to view various DKH services or even DKH as a whole as less than an ideal recipient of funding for operational needs, much less for capital improvements.
FACT – Other Regulatory-Compliant EHRs Are Available at a Mere Fraction of the Cost of EPIC. DKH will recover the cost of maintaining its current legacy medical records software system, $500,00-$1,000,000 per year. In addition, there are alternative providers of electronic health records (EHR) which meet all federal requirements. For example, a system has been identified that appears to be obtainable for a yearly cost perhaps as low as $1,000,000, which would be break even transaction when the legacy system is retired. DKH should not have to pay the price for one of the most expensive EHR solutions just because it is required to be compatible with Covenant’s existing EPIC-based system.
ASSERTION – Covenant Will Help Resolve DKH’s Pension Plan Deficit.
FACT – Pension Fund Help Is Capped, at Best. Covenant has not promised to contribute any funds to resolution of DKH’s outstanding $3+ million pension plan liability, relying on successful conclusion of negotiations instituted by DKH for federal assumption of most of this liability. However, Covenant does place a $1 million cap on any such contributions and insists on being able to walk away from the Takeover Deal if the pension plan liability is not settled, whether or not Covenant offers to make any such contribution.
ASSERTION – DKH Needs the Takeover Deal to Stay Afloat. Supporters of the Takeover Deal are suggesting that the choice is binary: accept the Takeover Deal now or go under in the near future.
FACT – Covenant Does Not Promise to Save DKH. Covenant does not demonstrate the financial, managerial or clinical capacity to “save” DKH. Perhaps reflecting its negative financial performance (posting operational losses during all but one of the last five fiscal years) Covenant has declined to undertake, even for the near term, to provide any guaranteed level of financial assistance much less in an amount sufficient to protect DKH from financial ruin. Quite the opposite, far from planning to financially benefit DKH, it would not be unreasonable to assume that Covenant, which owes a fiduciary financial duty to its existing network of health care institutions, expects to extract from its operation of DKH financial benefits sufficient to justify any attendant capital outlays and other assumptions of risk.
FACT – Rescue by a Benevolent White Knight Is Not the Answer. Looking for a “suitor” is largely unproductive. Unfortunate experience nationwide is that small hospitals acquired by larger systems tend not to gain economies or efficiencies so much as expensive additional overhead burdens. Research has shown that value typically is extracted from smaller hospitals while their overall costs remain steady or rise as administrative cost savings and benefits (including escalating executive compensation) flow up to the acquiring health care system. . Evidence in the applicant’s submission to OHS, is an annual “corporate overhead” charge-back to DKH of $7.2 million to pay for Covenant centralized functions of IT, Accounting, Payroll, Accounts Payable, Human Resources, Contracting, Supply Chain Management, Legal Services, Executive Leadership, Public Relations, Risk Management and “other functions” – DKH jobs and local contracts likely lost to NE CT.
FACT – Local Control of Hospitals Is Beneficial. Evidence shows that when hospitals are locally controlled, they improve access to and quality of care, health outcomes, and satisfaction with treatment, and can control costs. They actively address health needs in their communities and through collaboration with government, community organizations, and individuals, they can successfully manage fiscal challenges and solve problems.
FACT – There Are Alternative Fixes to DKH’s Financial Problems. There are viable options to keep DKH solvent, local, and independent. Although DKH has financial difficulties, its condition is similar to, and in fact better than, many other struggling CT hospitals, having proven marginally operationally profitable in recent years that were not overwhelmingly impacted by covid-19. Sufficient time and possibilities exist for long-term cures of DKH’s current financial woes that don’t require hollowing it out before it can be saved.
FACT – DKH’s Location Should Attract Government Support. DKH’s status as the only health care facility within reasonable traveling distance for much of its service community arguably has been and will continue to be a funding advantage. In essence, DKH may be viewed as almost a public utility, providing services that, if it were to go under, would need to be replicated by government to assure continuing access to essentially basic human services. This appears to have been born out recently in the naming this summer of DKH as the recipient of a $5 million state grant to help ameliorate the financial impact of covid-19. One can only speculate whether that grant would have been made by the State of Connecticut to a facility owned and operated by an out-of-state religiously affiliated health care institution. Other opportunities to vie for state and federal grants will surely present themselves provided we actively seek them out. Similarly, what a boon it would be if, through aggressive DKH lobbying initiatives, DKH’s $10 million per year contribution to the state hospital tax were to be significantly reduced.
FACT – DKH Already Possesses the Talent and Capabilities Required for Long Term Stability. Turning around DKH’s financial direction will take vision and effort at all levels of the DKH staff, not ham-handed business school style top-down management and quick externally supplied magical fixes. Clinical and other staff, hands-on managers, the board of directors and even corporators will need to work more closely and creatively together to accomplish this – we have the talent and will to accomplish our own salvation by rolling up our sleeves to achieve collaborative transformational success.