Hartford Business Journal

20 Hartford Business Journal • March 7, 2016 www.HartfordBusiness.com OPINION & COMMENTARY EDITORIAL State late to modernizing health industry oversight O ne of the chief complaints about government is that it's often behind the eight ball when it comes to discerning macro trends, putting consumers, businesses and the broader economy at risk. The subprime mortgage crisis was a prime example, as myriad government regula- tors and legislators fell asleep at the wheel allowing shoddy home loans to derail the world economy. In Connecticut, the state's slipshod oversight of the healthcare industry is a con- cern. Last week, Gov. Dannel P. Malloy essentially ordered a one-year moratorium on hospital mergers, so that a newly formed task force could examine the state's mergers and acquisitions oversight process and other major changes gripping Connecticut's healthcare industry. Our question is what took so long? Consolidation has been overtaking Connecticut's healthcare industry for at least a decade. It started with the 2006 merger of New Britain General and Bradley Memorial hospitals, and picked up speed following passage of the Affordable Care Act in 2010. Now there are just a handful of independent hospitals left in the state; 22 of Connecti- cut's 28 acute-care providers are either owned by or seeking to join larger institutions. Concerns about larger health systems' abilities to raise prices and reduce patient ser- vices are legitimate, but the consolidation train, in many ways, has already left the station. Connecticut should have modernized and standardized its M&A oversight process years ago, when major deals were already percolating and media organizations across the state, including Hartford Business Journal, wrote in-depth pieces (see "Hospitals Seek Survival in Arms of Health-Care Giant" Aug. 10, 2009) predicting a major con- solidation wave even before "Obamacare" became part of the American vernacular. Indeed, the major changes sweeping through the state's healthcare system shouldn't be a surprise. Lawmakers in recent years have held numerous meetings and public hear- ings about hospital and physician-practice consolidation and how to properly oversee it. Yet, according to Malloy, Connecticut has taken a "piecemeal" approach to the merger approval process, which seems to be an admission of regulatory malpractice, posing significant risks for the healthcare industry and Connecticut's broader economy. Signs of that "piecemeal" approach were evident in 2014, when the state Office of Health Care Access (OHCA) proposed unprecedented controls over staffing, services and pricing as a condition for Texas-based Tenet Healthcare to purchase Waterbury Hospital. Tenet was a for-profit operator also looking to buy several other hospitals, but ended its two-year bid to enter the state after OHCA essentially handcuffed its ability to do business here. At the time, we questioned why state regulators were asking Tenet to play by different rules than other Connecticut hospitals, as some of the 47 conditions placed on Tenet's deal were included in previous 2014 legislative proposals that lawmakers deemed too onerous. The irony is Tenet could have provided added competition to an industry many experts agree will be dominated by a few large systems, including Hartford Healthcare and the Yale New Haven Health System. Luckily, several new players have since entered the market — Michigan-based Trinity Health and California-based Prospect Medical Holdings — to buy some of our state's healthy and ailing hospitals. We understand making sense of the rapidly changing industry is no easy task, and we aren't asking state regulators to rubber-stamp hospital mergers. Clearly, we need a comprehensive study on the state's competitive landscape and health systems' market power. We also need a more equitable, transparent and streamlined regulatory process that establishes well-defined benchmarks for governing hospital and physician-practice takeovers. We're just disappointed Malloy and the rest of the legislature are showing up so late in the game. n RULE OF LAW Don't blame GE for leaving CT By John Horak I f GE executives have second thoughts about their decision to leave Connecti- cut, all they need to do to restore peace of mind is read editorial pieces that have been published recently that disparages them and their company. An example is an op-ed by Sarah Littman ("Who are the Real Moochers?"), which appeared on the CT News Junkie's web - site Jan. 22. Littman takes State Rep. Themis Klarides (R-Derby) and State Sen. L. Scott Frantz (R-Greenwich) to task for arguing that GE's exit is the result of the state's lack of leadership and contempt for private-sector business, and for their warning that the state's excess borrowing and high taxes will drive more companies out of state. In Litt- man's words, they "have the barefaced chutzpah to stand there and claim this decision is due to Connecticut taxes when GE is one of the nation's most notorious corporate tax avoiders." She also chastises Massachusetts for handing GE subsi- dies (corporate welfare) worth $181,000 per job to induce GE's move to Boston. Littman's complaints about corporate tax avoidance and welfare are popular because they are seductively simple and provide an easy target. It is easier to cast GE as an entity of ill repute selling itself to the highest bidder, than it is to do the hard work neces- sary to get our state's fiscal house in order. However, my purpose is to demonstrate that her widely held, but facile grievances fail to make the case that Klarides and Frantz are wrong about Con- necticut's failed lead- ership and antipathy to business. First, I am a tax lawyer by training, and in my 35 years in practice I have never met any individual, corporation or nonprofit, whether rich, poor, big, small, Republican, Democrat or socialist, that did not do his, her, or its best to avoid taxes. Tax avoidance is legal — and means planning your affairs (including where you reside) to reduce your tax liability by any means the law allows (such as by claiming available deductions and exemptions). On the other hand, tax evasion (avoiding what the tax law requires) is a criminal offense (such as claiming a personal exemption for children who don't exist). Moreover, the tax question must be exam- ined in the context of the state's accumulated liabilities to its bondholders and pension funds (totaling $ 70 billion or so). These must be paid with someone's money. So the tax question is whether we trust the leaders who got us into this situation not to double down on their spendthrift habits with new or additional taxes. Many people have asked me why investors keep buying our bonds if we are in such bad shape. The answer, I suspect, lies in the state's ability to increase existing taxes and, with a simple majority vote in the legislature, impose a state- level property tax on homes, cars, equipment, and any other property on top of municipal property taxes already in place. At the end of the day the buck stops with the taxpayers. Second, I abhor corporate welfare as a means of attracting business to the state. In my perfect world, states would attract businesses solely on the basis of the health of their culture, economics and management. But the reality is that the corporate welfare genie left the bottle years ago, and we have to deal with him and every other state playing by his rules. Consequently, the real question is how well our state's leaders play the business recruit- ment game. Two recent events indicate they do so poorly. The first is the notorious mistake that was made during the state's presentation to GE executives (in an effort to convince them to stay) in which the written materials included a picture of a Pratt & Whitney jet engine. This was a high school-level blooper — the equiva- lent of a typo-laden cover letter and resume submitted to a prospective employer. But the irony drenched example is what happened with Tenet Healthcare a little over a year ago. Texas-based Tenet had reached an agree- ment to acquire five Connecticut hospi- tals, convert them to for-profit entities and invest $550 million of its own money in the state. The proceeds of the acquisitions would have poured money into community healthcare foundations, and new investments would have upgraded and modernized healthcare facilities. Tenet walked away from the deals after the state imposed onerous restrictions on one of its acquisitions. Meantime, the state's response to our hos- pital's continuing red ink is to tell their CEOs to take a pay cut. Now, that is chutzpah on a grand scale — one that we may not be able to afford any longer. n John M. Horak has practiced law at Reid and Riege P.C. in Hartford since 1980. His opinions are his own. HARTFORDBUSINESS.COM POLL Should Tesla be allowed to sell its cars directly to CT consumers? ● Yes ● No To vote, go online to HartfordBusiness.com. Last week's poll results: Should CT end minimum pricing rules for alcohol? 82.7% Yes 17.3% No John Horak ▶ ▶ But the reality is that the corporate welfare genie left the bottle years ago, and we have to deal with him and every other state playing by his rules. Send Us Your Letters The Hartford Business Journal welcomes letters to the editor and guest commentaries for our opinion pages. Electronic submissions are preferred and welcome at: editor@HartfordBusiness.com. Or you may fax submissions to Editor, Hartford Business Journal, at (860) 570-2493.

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