Worcester Business Journal

12 Worcester Business Journal | July 24, 2017 | wbjournal.com F OC U S L A W A complaint against Delta Dental may result in more regulation against the for-profit divisions of nonprofits – like hospitals and insurers Scrutinizing the profits of nonprofits "They see this as an important issue that they have to deal with very carefully, and it's complicated." James Donnelly Mirick O'Connell attorney, on the At- torney General's review of Delta Dental's new for-profit spinoff BY EMILY MICUCCI Worcester Business Journal Staff Writer N onprofit healthcare organi- zations in Massachusetts avoid millions in taxation each year in exchange for serving the public interest, but that doesn't mean they don't know how to make money. Providers with charitable missions, frequently among the largest companies in a given region, are often buoyed by for-profit subsidiaries, which may soon be under closer scrutiny. This month, the Massachusetts Division of Insurance announced a new preferred provider organization plan created under a for-profit subsidiary of Delta Dental of Massachusetts was approved for business, a good thing for small businesses looking to offer afford- able dental insurance for their employ- ees, according to Delta, the state's largest dental insurer. But a group of opposing dentists have asked Attorney General Maura Healey to review the plan, complain- ing, among other things, the insurer is moving the assets of the nonprofit charitable parent into a for-profit com- pany not beholden to the same mission of serving the public interest. The dentists claim using for-profit subsidiaries creates a complicated cor- porate structure, making it more diffi- cult for the Attorney General's Office to review its dealings, as required by state law. Delta Dental spokeswoman Kristin LaRoche shot down the claim the corporate structure makes the company less transparent, saying it's actually a strength, giving the compa- ny the financial wherewithal to pro- vide dental benefits while supporting initiatives to improve oral health. Healey's office is reviewing the new for-profit spinoff, in terms of how it impacts the operations of the nonprofit parent organization, Healey spokes- woman Emily Snyder said last week. Disturbing or complicated James Donnelly, an attorney in the Worcester office of Mirick O'Connell who is representing dentists opposing Delta Dental's new plans, said Healey is likely carefully reviewing the matter, as a review and its outcome could set a precedent for healthcare companies cre- ating spinoffs. "They see this as an important issue that they have to deal with very careful- ly, and it's complicated," Donnelly said. Donnelly's experience as a litigator representing healthcare clients informs his balanced view of the use of for-prof- it subsidies. In the case of Delta Dental, Donnelly said the nature of the spinoff creates concern because assets from the nonprofit are being transferred to a for- profit subsidiary. But in other cases, creating for-profit spinoffs is savvy, as profits can be redirected to support a parent organization's charitable mission. "Some situations can be disturbing; others are just examples of how things get complicated as they get bigger," Donnelly said. A $12M spinoff Most nonprofit Massachusetts health insurance plans, including Worcester- based Fallon Health, have for-profit subsidiaries, as does the region's largest employer, nonprofit UMass Memorial Health Care in Worceser. UMass Memorial has been aggres- sively pursuing affiliation deals under its for-profit, UMass Memorial Health Ventures Inc. Last year, the spinoff gen- erated about $12 million, which was used to reinforce operations of the sys- tem at large, said Sergio Melgar, chief financial officer of UMass Memorial Health Care. Melgar said by owning for-profit subsidiaries, UMass Memorial can be more nimble, extending its reach beyond Massachusetts. UMass Memorial has other separate for-profit ventures, but most will probably end up under the Ventures umbrella in the future, Melgar said. Under the Ventures company, UMass Memorial has affiliated with national firm ATI Physical Therapy, and Quincy-based CareWell Urgent Care. "Healthcare is really getting con- nected to other locations, throughout the country," Melgar said. "It's a way to stay competitive and to stay relevant in the market." The assets and income generated by for-profit subsidiaries are audited and reported to federal and state regula- tors, and Melgar said all activities are transparent. Yet, critics remain. Cayman Islands dealings One of the most vocal opponents of UMass Memorial's for-profit activities is Sergio Melgar, CFO at UMass Memorial Health Care, said the system's for- profit spinoffs are very transparent in their dealings. P H O T O / M A T T W R I G H T

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