State law could complicate possible Memorial sale, use of proceeds

The state Attorney General’s Office is reviewing whether a 12-year-old law regulating the sale of nonprofit hospitals in Colorado would affect a possible sale of Memorial Health System.

The answer could have far-reaching implications.

If the Hospital Transfer Act applies to Memorial, the state attorney general would have to sign off on any sale, and the city government would be limited in how it could spend the money it would get from selling the city-owned enterprise.

In other words, the city may not be able to use the proceeds from selling Memorial for general city services, such as police, fire and parks.

The law, passed in April 1998, requires that proceeds from the sale of a nonprofit hospital be used for “charitable purposes,” which could affect any recommendation from the Citizens Commission on Ownership and Governance of Memorial Health System.

The City Council-appointed commission, which has been meeting weekly since March, is studying various ownership changes for Memorial, including a possible sale.

Mayor Lionel Rivera said recently that he asked Attorney General John Suthers, who lives in Colorado Springs, about the law when he met up with him at a reception.

“This is my broad interpretation,” Rivera said. “If the hospital is sold to a for-profit, the proceeds from the sale would more than likely end up in a trust, kind of like the El Pomar Foundation, that would be created for the benefit of the community at large.”

The city would have a lot more leeway with how it could spend the proceeds if Memorial were sold to a non-profit with a similar mission, the mayor said.

But key questions remain unanswered, including whether Memorial is considered a nonprofit.

“I think the issue is: Is the city-owned hospital considered a nonprofit for purposes of the act?” said Ed Kahn, special counsel with the Colorado Center on Law and Policy, a nonpartisan policy research organization. “The answer to that is not 100 percent clear.”

City Attorney Patricia Kelly, who asked Suthers for the review, told the council earlier this year that the hospital applied for non-profit status in 1978 “for the purpose of setting up an investment fund at the hospital for the employees.”

Mike Saccone, a spokesman for Suthers, said the applicability of the law remains under review, including whether a nonprofit hospital may be distinguished from a government-owned hospital.

Kahn said the law was born after a number of nonprofit Colorado hospitals were acquired by for-profit hospital systems from  1985 to 1995.

“A group of community advocates who were concerned that these hospitals were being picked off for below market value pushed for legislation,” he said.