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December 19, 2011

Fletcher Allen and Fresenius Pull Plug on Sale of Dialysis Clinics

Fletcher_AllenA for-profit company that wanted to buy Fletcher Allen Health Care's five outpatient dialysis clinics announced today it's pulling the plug on the $28-million sale.

FAHC announced last year it wanted to sell off the clinics because they were losing about $1.8 million annually. Fresenius Medical Care proposed to buy them and run them through its subsidiary, Bio-Medical Care Holdings, based in New Hampshire.

State regulators panned the proposed sale earlier this month.

Steve Kimbell, commissioner of the Department of Banking, Insurance, Securities and Health Care Administration, issued a preliminary denial of the proposal on the grounds that the sale would result in lower-quality services at higher cost, without any improvement in access to care.

Rather than appeal Kimbell's preliminary ruling, Fresenius and FAHC have agreed to let it stand as the final word.

Officials representing Fresenius and FAHC blasted Kimbell's draft decision in separate letters, claiming it misrepresented facts and, as a result, drew improper conclusions.

In a tersely worded, seven-page letter to Kimbell, interim FAHC president and CEO John Brumsted said the healthcare organization disputes many of Kimbell's findings and observations.

"In short, Fletcher Allen disagrees strongly with your decision, but we recognize that it is not likely to be changed by further administrative or legal proceedings," Brumsted wrote. "Fletcher Allen believes that its decision to sell put the interests of our patients first. It would have assured the continuation of high-quality outpatient dialysis in Vermont at the existing locations for at least 10 years, while permitting Fletcher Allen to relinquish what is for us, at best, a financially marginal service and to strengthen other core services. Your decision, we recognize, overrides Fletcher Allen's decision, approved by our Board of Trustees, but we continue to believe strongly that [our] decision was the best one for our patients and the communities we serve."

Brumsted said FAHC believes Kimbell set a dangerous standard in his interpretation of the state's certificate of need law as it applies to this sale. State law requires regulators to determine a consumer "need" for the sale to occur.

"The approach taken in your proposed decision, if consistently applied, would raise an almost insurmountable barrier to any purchase transaction that is subject to CON review, unless the seller is in extraordinary financial distress. In essence, you decided that our proposed sale to Fresenius is not 'needed,' because Fletcher Allen had not decided definitively and declared publicly that it will close its dialysis clinics without a sale," wrote Brumsted.

FAHC and Fresenius argued that the sale would keep the dialysis clinics intact for 10 years and maintain certain minimum staffing levels. Kimbell questioned those assumptions, skeptical of the resulting increased charges to insurance carriers to ensure that Fresenius would earn back a return on its investment. He also questioned whether FAHC couldn't do a better job with the existing facilities within its existing budget.

In its letter, Fresenius disputed Kimbell's conclusion that estimated the company was showing a 20 percent decrease in nursing staff.

"The applicant has, in fact, extended conditional offers of employment to each and every member of the current nursing staff," wrote Annie Cramer, of Primmer Piper and Eggleston, the Burlington law firm that represented Fresenius. Any staff cuts were made by FAHC and reflect current head counts, not proposed ones, she added.

Cramer also wrote that Fresenius was upset that it was given no opportunity to address Kimbell's concerns and claims during the review process. Its only option was to respond once Kimbell made his proposed decision public.

Fletcher Allen operates five outpatient dialysis clinics, in South Burlington, St. Albans, Berlin, Rutland and Newport. They collectively serve about 241 people, with another 26 people receiving services in their homes. The total sale was valued at more than $28 million.

“Bio-Medical’s decision to withdraw closes the docket in this matter,” said Clifford Peterson, BISHCA’s general counsel. “The Department will work with Fletcher Allen to assure continued delivery of high-quality outpatient dialysis treatment to Vermonters.”

Brumsted complained that FAHC cannot simply raise its rates to cover losses as Kimbell noted in his proposed decision.

"Raising rates (charges) for hospital services does not result in a dollar-for-dollar increase in hospital revenues. Hospitals are not paid what they charge. This is especially true with respect to outpatient dialysis services, for which Medicare is the primary payer and provides fixed reimbursement that is non-negotiable and completely unrelated to hospital rates or charges," Brumsted noted.

For FAHC, Medicare provides roughly 90 percent of the reimbursement for dialysis services. Less than 10 percent of FAHC's  outpatient dialysis services are currently paid by commercial payers, and on average, commercial payers pay only 64 percent of what FAHC charges, Brumsted noted in his letter.

"Commercial reimbursement is also subject to negotiation or renegotiation of payment contracts with insurers. Health insurers are highly resistant to payment increases. Payment increases may also require separate approvals from health insurance regulators," Brumsted added. Given these dynamics, Fletcher Allen's ability to increase dialysis revenues is complex and highly uncertain."

Download full letter from FAHC to BISHCA: Kimbell letter 12-19-11

Download full letter from Fresenius to BISHCA: Withdrawal of CON Application

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