Commentary: Hoag should unwind affiliation with St. Joseph

Responding to an outraged public, the state attorney general is reassessing Hoag Hospital’s affiliation with St. Joseph Health System. The attorney general is considering a number of issues that weren’t apparent during the initial review.

One of the major problems I have with Hoag’s part in all this is that it didn’t act as prudently as a $1 billion organization should. According to its application to the attorney general, Hoag did not exhaust all alternatives before choosing to affiliate with St. Joseph. To be precise, Hoag said it hadn’t examined any other opportunities at all.

To rectify this, Hoag should unwind the affiliation. It should go back and perform an analysis worthy of a large corporation. Stakeholders can then know that Hoag is pursuing a “fair and reasonable” strategy, as directed by the law.

This absence of due diligence matters to the state government as well as to anyone who cares about “our” hospital. The foremost factor that the law requires the attorney general to consider is whether the “terms and conditions of the agreement or transaction are fair and reasonable to the nonprofit corporation.”

Hoag’s own consultant had informed its board of directors that other hospitals across the nation had used seven strategies to gird themselves for the coming hyper-competitive healthcare marketplace.

Since Hoag considered only one strategy, the stakeholders will never know if Hoag’s actions were “fair and reasonable to the nonprofit corporation.” This seems an unlikely way for the largest employer in Newport-Mesa to instill confidence in donors, professional staff, employees, patients and the taxpaying public.

Are the other strategies so bad that they could be dismissed out of hand? The seven strategies are: 1) merge independent community hospitals and small health systems; 2) academic medical centers (such as UC Irvine Medical Center) acquire community hospitals; 3) form or expand state or regional health systems; 4) form “superpower” systems that acquire other small systems and hospitals in neighboring states; 5) form national health systems by combining smaller systems and hospitals; 6) for-profit players purchase nonprofit hospitals; and 7) private equity firms acquire hospitals.

With such a palette of choices, is it wise governance to dismiss all but one without in-depth analysis?

Was St. Joseph was the only possibility? Not likely, since there are 19 hospitals and four hospital systems besides SJHS that provide hospital care to Hoag’s service area population.

Did Hoag have to rush into this because there wasn’t time to be diligent? Not according to the attorney general’s advisor, who stated, “[Hoag’s] affiliation is not being driven out of a near-term financial or strategic necessity.”

So even though Hoag and St. Joseph are religion-based, it appears their affiliation is not exactly a match made in heaven. Hoag should get its feet back on the ground and do things right.

TOM EGAN lives in Costa Mesa.