By Dale C. Van Demark

As we weather what most industry watchers (including me) have observed is a renewed wave of hospital and provider consolidation, it is likely we will continue to see failed merger attempts involving religious and non-religious hospitals. The recent failures of the hospital mergers in Waterbury, Connecticut and in the Philadelphia suburbs are just two recent examples.

The Conundrum

Many religious hospitals trace their religious affiliation to the origins of the institution, which can date back many decades.  For some religious hospitals, their very existence, or their survival through difficult times, is linked closely with the efforts of religious institutions. Regardless, the mission of many religiously affiliated hospitals is directly tied to core religious principles – and for some, the basis for tax exemption is tied to this richer mission. As such, these hospitals present a more complicated picture than a secular hospital.

When community hospitals consider a merger or other dispositive transaction, they must consider their mission, regardless of whether they are religiously affiliated, and regardless of the nature of the transactions contemplated. In many instances both religious and secular community hospitals seek to expand or simply preserve their core values in the context of substantial change. And, of course, when one institution acquires another, the acquiring institution frequently takes steps to integrate new facilities into its own culture. These dynamics are as likely with secular hospitals as they are with religious hospitals.

Such attempts can cause tension. Even a non-specific, broadly worded acknowledgement of religious principles (whether as part of a non-binding letter of intent, or a binding transaction document) can be objectionable to a health system that is purely secular. However, when religious tenets require the restriction of services, religious affiliation can become an even greater risk to moving forward, as such issues can spill over into a broader policy or public debate.

The right of access to family planning services, including abortion, contraception or even end-of-life decision-making have been significant public issues in the United States for many years. Accordingly, it should come as no surprise that the extension of restrictions on such services through the merger of religious and secular hospitals can lead to a broader public debate over the appropriateness of the combination.

Sometimes, the availability of such services may be limited throughout a given community as well. This, of course, can increase the significance of the public concern.

In such circumstances, where public passions over hot-button political issues are inflamed, logic and reasoning can quickly turn to fear and reactionary positioning. Legal considerations regarding process – such as what individuals or entities may actually have standing to compel or prohibit action – stop mattering; compromise becomes increasingly difficult, and the chances of closing reduce.

How to Move Forward – Three Critical Factors

Before moving forward with a merger transaction, religious and secular hospitals should keep in mind a few key factors – factors that may result in a determination not to move forward at all.

1.         Mission

Fundamental to every decision made by a health system is respect for its mission. This is especially true of merger transactions. Put in terms of mission, religious principles in mergers between religiously affiliated hospitals and secular hospitals can be material. Accordingly, before deciding to engage in a transaction at all, the parties need to take a hard look at their respective missions. This may result in a decision not to proceed or a decision to modify the application of religious principles in the post-transaction arrangement. Regardless, the goal is to reach an agreement on how best to move forward while remaining respectful of the history and mission of each party. This critical step must come first, and must happen very early in the process.

2.         Remember Your Stakeholders

Stakeholders include a broad range of individuals and entities that have some interest (financial or otherwise) in a hospital. The particularities of mission (which may include continuing that mission intact) may be of specific interest to some stakeholders. Nearly all stakeholders can impact – if not also inhibit – the ability to close a transaction. Accordingly, understanding the perspective of stakeholders is important – they can help focus the importance of an issue, and can be allies or obstacles to a transaction. Issues of confidentiality can make assessing the interest or intent of some stakeholders difficult early in the process, but confidentiality concerns need to be weighed carefully against the value and benefits of timely and richer engagement.

3.         Context Matters

“Mergers” come in many forms and under many circumstances. The implication for religious principles can be drastic both in terms of messaging and possible application. For example:

Catholic institutions may not have the ability to negotiate away from aspects of the Ethical and Religious Directives while retaining Catholic identity.

  • When transactions include the disposition of funds (e.g., in a purchase and sale of assets or the allocation of existing funds in a foundation or reserve) the continuation of religious principles in the hospital may not be as compelling if the religious principles can be funded and carried forward in a different organization.
  • The broad availability of health care services in a community may lessen community concerns if continuing religious directives preclude the delivery of certain services post-transaction.
  • Government facilities may be precluded from operating under religious principles on constitutional grounds.
  • The preservation, as opposed to expansion, of the application of religious principles can keep missions distinct and more acceptable to the parties and their constituents.

Religious tenets very easily can become flashpoints for intense debate (including public debate) in the context of hospital mergers. Sometimes, this is unavoidable.

Regardless, fully understanding mission implications, the perspective of stakeholders and the broader context of a possible transaction can help the parties focus their messaging and response to the particular challenges associated with the merger of religiously affiliated and secular hospitals.