AG: Memorial sale proceeds would have to be used for health care

May 25, 2010
photo - Any sale proceeds of Colorado Springs' Memorial Health System would have to be used for health care according to Colorado Attorney General's office.  Photo by Bryan Oller, The Gazette
Any sale proceeds of Colorado Springs' Memorial Health System would have to be used for health care according to Colorado Attorney General's office. Photo by Bryan Oller, The Gazette 

The possible sale of Memorial Health System to a for-profit entity could not be used as a multimillion-dollar windfall to help bail the city of Colorado Springs out of its financial crisis.

But if a nonprofit acquired Memorial, the city would have a lot more freedom in how it could spend the proceeds, Colorado Attorney General John Suthers told the Citizens’ Commission on Ownership and Governance of Memorial Health System on Tuesday.

The attorney general’s advisory opinion is likely to affect any recommendation from the citizens commission, which is exploring ownership changes, including a possible sale.

“There’s typically a couple of reasons why a community would sell to a for-profit,” Larry Singer, a Loyola University Chicago law professor and health care consultant who is working for the commission, said afterward.

“One is: We need the capital. The second primary one is: We want to cash out. The capital issue doesn’t seem to be a driver here,” he said. “The cash-out one, I think, became somewhat less attractive because clearly the monies are going to have to continue to be used, if I understood (Suthers) correctly, exactly for the purposes in the articles of incorporation.”

Still, Singer said all options are still on the table.

“Some may be more or less attractive than others,” he said. “That’s really up to the citizens of Colorado Springs to decide.”

Suthers, who lives in the Springs, had been asked by City Attorney Patricia Kelly to analyze the applicability of the state Hospital Transfer Act on Memorial.

“It’s important to the commission to have all the information available before they go out to the public,” said Kelly, who also attended Tuesday’s commission meeting.

The law, which regulates the sale of nonprofit hospitals in Colorado, was passed in 1998 after numerous nonprofit hospitals were acquired by for-profit health systems.

Suthers said the sale or transfer of Memorial would be a “covered transaction” under the law and that Memorial is considered a nonprofit.

Although initially denied by the IRS, Memorial obtained nonprofit status in 1978 to create a 403(b) retirement savings plan for employees.

“The impact … is that the proceeds of a sale to a for-profit entity would have to be given to a charitable entity with essentially the same charitable purpose as Memorial Hospital,” Suthers said. “In other words, the (proceeds) would have to be used for health care-related purposes.”

But the city would have more leeway with the money if a nonprofit acquired Memorial.

“There is no clear requirement regarding the use of proceeds, if any, from the transaction from a nonprofit to nonprofit,” Suthers said. “The focus is on the asset and the preservation of the charitable purpose in the community.”

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