MANAGED CARE Advisory panel deals Lifespan a rare setback BY STEVEN STYCOS

Unswayed by a squad of lawyers and Lifespan executives, an advisory state panel last week conditioned the separation of Lifespan and the VNA of Rhode Island on the home health-care agency being left debt-free by the large hospital network.

"We’re extremely concerned about the financial viability of the visiting nurses," explained Robert Quigley, vice chair of the Health Services Council’s project review committee. He suggested removing a provision from the separation agreement that could potentially divert $15 million from VNA to Lifespan. The proposal passed unanimously on Tuesday, September 9.

Asked by council members if the revised agreement was acceptable, Lifespan CEO George Vecchione responded, "It is not."

The project review committee’s action marked a rare regulatory defeat for Lifespan. Although only advisory, recommendations by the Health Services Council are usually adopted by Department of Health Director Patricia Nolan, who, under state law, must approve changes in ownership of health-care institutions. On September 30, the full council will vote on the VNA separation, and Nolan will then make a final decision.

The VNA began its turbulent partnership with Lifespan when the two organizations merged in 1996. By 2000, the VNA had accumulated $30 million in debt to Lifespan, primarily because of declining reimbursements, particularly from Medicare, and overhead charges from Lifespan. Then, the entire board of the VNA’s fundraising arm resigned in December 2001. At the time, VNA Foundation chair John Finch charged that Lifespan "virtually cleaned out all our charitable assets, endangering our mission of delivering community based health-care." Among other moves, the foundation board blasted the sale of the VNA’s Gammel House to controversial developer Richard Baccari and the VNA’s subsequent move to the Lincoln Mall, which was owned by a company controlled by a Baccari trust.

The proposed separation agreement, which was hammered out with the aid of Linn Freedman, then-deputy chief of former Attorney General Sheldon Whitehouse’s civil division, calls for the VNA to pay Lifespan $932,000, but forgives the $30 million debt. The VNA would, however have a $15 million "contingent liability" for 10 years. In every year the VNA has a surplus over $50,000, it would have to give Lifespan half its profit, up to $15 million. In addition, about 10 percent of the VNA’s endowment would be counted as income, under the agreement.

Despite assurances from VNA president Mary Linn Hamilton, council members and health department staff wondered if the financially fragile VNA could survive under the deal. John Donohue, the health department’s chief of health systems development, questioned whether VNA donors will be informed that Lifespan would take part of their gifts. And council member Marvin Greenberg asked how the VNA could capably negotiate its separation while owned by the very corporation with which it was bargaining.

Although admitting that he did not expect the VNA to repay the $15 million, Vecchione defended the agreement, saying that if the VNA received a large donation, "the hospitals that kept them alive [The Miriam Hospital and Rhode Island Hospital] are entitled to some payback." But under tough questioning from health department lawyer Joseph Miller, Vecchione conceded that the VNA no longer technically owed Lifespan $30 million, because the debt had been written off as an "equity transfer" in the fiscal year ending in September 2001.

Whitehouse, Freedman, Rhode Island Hospital president Joseph Amaral, and Miriam Hospital president Kathleen Hittner also defended the proposed separation agreement as fair.