Attorney General Lockyer Approves Tenet Purchase of USC Norris Hospital with Conditions to Maintain Cancer Care and Charitable Services
(SACRAMENTO) – Attorney General Bill Lockyer today announced he has approved Tenet Healthcare Corporation's purchase of USC Norris Hospital in Los Angeles, after imposing strict conditions to preserve cancer care, charitable medical services and community benefit programs now provided by the nonprofit hospital.
"With the conditions, this transaction will benefit USC, its health care services and the community,' said Lockyer. 'USC will earmark more than $25 million in proceeds from the sale to fund cancer care, including research-related treatment. Tenet ultimately will provide more than $1.3 million annually for charitable health care and community-based programs such as cancer support groups. Questions have been raised about Tenet's business practices. But my office believes the transaction, as conditioned, will serve the public interest.'
Tenet will pay $35 million in cash to buy the business operations of USC Norris Hospital. The nonprofit facility provides inpatient and outpatient clinical services in support of the USC Norris Cancer Center. The Center conducts research trials at Norris Hospital, Children's Hospital of Los Angeles, USC University Hospital and Los Angeles County USC Hospital.
Under the purchase agreement, USC Norris Hospital will keep its real property and other significant assets, which have a combined net value of about $40 million. The hospital will use much of the retained assets and cash payments to cover liabilities and retire bond debt. The transaction will yield an estimated $26.5 million to $31.5 million in net revenue.
Tenet is building a 10-story inpatient facility next to USC University Hospital, which Tenet already owns and operates. Following a transition period, Tenet plans to transfer USC Norris inpatient services to the new facility and use existing USC Norris buildings for outpatient care.
The California Corporations Code requires the Attorney General to review the sale of nonprofit hospitals to for-profit companies. Following a public process, the Attorney General must decide whether to reject or approve proposed transactions. The statute requires the Attorney General to consider several factors in making the determination. The factors include whether the nonprofit receives fair market value, and the transaction's effect on charitable activities, access to health care and competition.
The statute allows the Attorney General to place conditions on approval of sales. In the Tenet-Norris transaction, a primary concern was preservation of the cancer treatment, charitable care and community-based programs now provided by USC Norris Hospital. The conditions imposed by Lockyer address that concern in three main ways.
Cancer Care: USC will be required to establish a nonprofit foundation that will fund inpatient and outpatient cancer care, as well as clinical, therapeutic, specimen and prevention research trials that provide cancer care. All net proceeds from the sale – $26.5 million to $31.5 million – will be used to fund the foundation, which will be called the USC Norris Cancer Center Foundation.
Charity Care: During the transition period, Tenet must provide at least $525,000 annually in charity care. After the transition period, Tenet's minimum annual charitable obligation will increase to $825,000, including care provided by USC University Hospital. This obligation, which expires in seven years, supplements a provision in the purchase agreement that requires Tenet to maintain existing charity care policies and levels for an unlimited period of time.
Community Benefit Programs: For 10 years from the date the transaction is finalized, Tenet must provide at least $500,000 annually for community benefit programs. The money will fund cancer education, cancer support groups, cancer screening, community events and other programs.
In addition to the conditions, the purchase agreement itself contains provisions designed to maintain and enhance USC Norris' cancer care services. For example, the agreement requires Tenet to spend a minimum of $10 million on capital improvements to existing facilities. The money will be used in part to expand the Lee Breast Center and open a urological institute.
The conditions imposed by Lockyer also address antitrust and labor issues. One condition reduces from seven years to five years the duration of a purchase-agreement provision that prohibits USC from competing against Tenet. Another requires Tenet to comply with nurse-patient ratios established by law, including any adopted by the state Department of Health Services.
The conditions ensure the Attorney General's Office will be able to closely monitor Tenet's and USC's compliance. Additionally, the Attorney General's Office specifically 'reserves the right to fully enforce each and every condition ... to the fullest extent provided by law.'
In approving the transaction, Lockyer considered testimony provided at two public hearings, written comments, a report on the health care effects and a financial analysis. The health care and financial reports can be viewed at http://ag.ca.gov/charities/content/nonprofithosp_archive.php.