Lawsuit reveals Central Health’s ambition to run its own hospital
Central Health and Ascension Texas sued each other Tuesday over a contract dispute involving Travis County’s indigent healthcare program.
Central Health, Travis County’s public healthcare district, has paid Ascension (formerly known as Seton Healthcare Family) since 2004 to provide hospital services and specialty care for the poor.
But Central Health now wants to terminate its agreement with Ascension and compel Ascension to sell it the Dell Seton Teaching Hospital.
Central Health’s 2013 master agreement with Ascension contains an attached “option agreement” authorizing it to purchase the Teaching Hospital if Ascension materially breaches the contract and the matter is not settled through dispute resolution.
The arrangement dates to a time when voters were asked to help fund Dell Medical School in return for a guarantee that the new medical complex would help care for the indigent population of Travis County.
In its lawsuit, Central Health asked for a declaratory judgment that Ascension has materially breached the contract, allowing Central Health to terminate the deal and exercise its purchase option.
The teaching hospital is built on land owned by the University of Texas at Austin, but Seton owns the hospital. The option agreement covers not only the hospital building but also all supplies, equipment, inventory, and fixtures.
“What we’re alleging is a material breach of the contract that starts the clock running on that option to purchase the hospital,” said attorney Casey Dobson of Scott Douglass & McConnico, the law firm representing Central Health.
“The option was created specifically as a last resort safety valve for this situation where Central Health would have the ability to purchase the hospital if Ascension was not living up to their bargain. And Ascension, we’ve alleged, is not living up to their bargain, so that’s why we’ve asked the court for a declaration that the option is operative,” Dobson added.
He was speaking at a press conference Tuesday alongside Central Health CEO Mike Geeslin and Board Chair Charles Bell, MD.
Alleged breaches of contract
Central Health says Ascension has “failed to provide agreed-upon healthcare services to low-income Travis County residents,” improperly billed charity care patients, and has not provided reports that Central Health needs to monitor its compliance with performance standards.
More specifically, the lawsuit alleges that Ascension eliminated certain services, imposed a monthly cap on the number of surgeries it would provide for indigent patients, and required long wait times for surgeries and other services.
As a result, the lawsuit states, Central Health has been compelled to contract with other providers to fill gaps in care. “These additional contracts come at a cost, totaling millions of dollars in the aggregate.”
Ascension Texas filed a counter-suit Tuesday, alleging that Central Health has underfunded and over-enrolled patients in the healthcare program, while refusing to adjust its reimbursement rates for services. The suit asks a judge to find that Ascension did not breach its agreement with Central Health but that Central Health did so. Such a finding would prevent Central Health from triggering the purchase option clause in the contract.
In a press statement, Ascension stated, “For more than five years, as the Travis County population continues to grow, demand for MAP (Medical Access Program) services has far exceeded the number of individuals the program was designed and funded to support. Central Health has unilaterally overenrolled individuals into the healthcare program while refusing to provide funding to support the care for these additional patients.”
Ascension also claimed that Central Health refused to engage in good-faith negotiations to resolve the dispute.
Central Health raised funds
If Central Health were to take control of the teaching hospital, it would add to a substantial real estate portfolio already under its control, including the former 14.3-acre site of Brackenridge Hospital, which is across the street from Dell Seton Medical Center. According to the Travis County Appraisal District, this property is worth $322 million, while the Dell Seton hospital building is worth $327 million. Central Health also owns a cavernous former Sears building on E. 41st Street, off Interstate 35, which it purchased in August 2021 for $18.7 million plus $423,000 in related purchases expenses, according to records obtained by public information request.
Taking over Dell Seton would also allow Central Health to receive and directly manage federal funds that presently it funnels to Ascension.
The plan might explain why Central Health has been building up financial reserves worth hundreds of millions of dollars in recent years. It ended the 2022 fiscal year with $400 million in current assets (an accounting category that includes cash, cash equivalents, and short-term Treasury bills), according to Central Health’s audited financial statements. For fiscal 2023, the agency budgeted for a $328 million contingency reserve and a $39 million emergency reserve.
Central Health’s petition states, “To prepare for an uncertain future that may include owning and operating the Teaching Hospital, Central Health has been preparing to cover costs that it may incur in relation to the Teaching Hospital.”
In its press statement, Ascension criticized Central Health over its financial reserves, saying it could have used these reserves to fully fund the MAP program.
Ascension Seton CEO Andy Davis stated, “We question the need for maintaining such large reserves of taxpayer dollars when the critical healthcare programs those dollars are intended for remain underfunded.”
“Central Health’s contingency reserves have multiplied eightfold in the past five years, currently sitting at more than $300 million—even as there are unmet needs in the population the agency was created to serve. The public entity is also incurring significant new administrative expenses, such as a new headquarters facility, which will come at a reported cost of $63 million.”
“We are disappointed to see that Central Health is attempting to distort the facts surrounding demand for MAP services and the nature of our agreement. We are confident that the legal process will result in a solution that provides adequate funding for the MAP program moving forward.”
‘No experience operating a hospital’
Most major metropolitan healthcare districts in Texas directly provide healthcare services to the poor. Central Health is unique in that it has always contracted out those services to affiliated nonprofits.
Recently, however, it has taken steps to improve its own clinical capacity. Central Health is refurbishing the Sears building it purchased in 2021 in such a way that it can host some clinical services at the site, in addition to offices. Central Health hired a chief medical officer and is currently trying to recruit an associate chief medical officer. And it budgeted this year for direct care clinical services at its new Rosewood Zaragosa Health Center, which will provide services for a sliding-scale fee based on income.
At the press conference, Geeslin was asked by a Statesman reporter, “What qualifies Central Health to run Dell Seton. You don’t own the building, you don’t own the land, you don’t own anything that is in it?”
He responded, “We wouldn’t have filed this litigation if we didn’t believe that we would be ready when that time comes.”
Similarly, Bell stated, “This option is not something we wanted to pursue. But we have to do what is necessary to ensure that, in the future, this safety-net hospital will deliver the level and quality of care that Travis County residents with low income need and deserve.”
On the other hand, Ascension questioned whether Central Health was sincere in planning to take control of Dell Seton and would really be able to do so. Through a public relations manager, the nonprofit told the Bulldog, “We believe Central Health filed the lawsuit not because of breach of contract, but because they believe it would give them leverage and put pressure upon Ascension Seton. We also believe it’s a ruse for Central Health to buy Dell Seton Medical Center, because they have no experience in operating a hospital.”
Nearly 70 percent of patients served at Dell Seton Medical Center are uninsured or under-insured, according to Ascension.
Central Health has other problems
Last October, the Travis County Commissioners Court voted unanimously to require that Central Health undergo and pay for a performance audit to be performed by an independent third-party consultant. In mid-December Commissioner Margaret Gomez told the Bulldog that a request for proposals issued had gotten insufficient response and the scope of work might be revised so another request could be issued.
Travis County reissued a request for proposals for an independent performance audit of Central Health on January 18, 2023.
In addition, a lawsuit filed in 2017 seeks to stop Central Health from spending money on anything not related to furnishing medical aid and hospital care to indigent and financially needy persons residing in Travis County or any purpose not statutorily authorized in Chapter 61 of the Texas Health and Safety Code. (Birch et al v. Travis County Healthcare District dba Central Health et al, Cause No. D-1-GN-17-005824). If successful, that lawsuit would halt Central Health’s payments of $35 million a year to the University of Texas for Dell Medical School.
Fred Lewis, one of the attorneys who represents plaintiffs in the lawsuit, told the Bulldog that plaintiffs expect to depose University of Texas officials in March, after which both sides will file dispositive motions. “Instead of going to trial, these motions to end the lawsuit will result in a decision for them or us,” he said.
Asked to comment on the litigation between Central Health and Ascension, Lewis said, “Neither Central Health nor Ascension Seton has shown much interest in the poor or their health. They seem more focused on the bottom line and economic development.”
“I am highly skeptical Central Health can run a complex hospital system when they’ve never done it before and haven’t even done a good job running a much simpler payor system.”
Trust indicators: Bulldog reporter Daniel Van Oudenaren is a journalist with 13 years experience in local, state, and international reporting. He covers local elections and issues of government transparency and accountability at City Hall, Central Health, the Austin Transit Partnership, and other local governments.
Editor Ken Martin contributed to reporting for this article.
Central Health’s original petition against Ascension Texas, January 24, 2023
Ascension’s original petition against Central Health, January 24, 2023
Master Agreement between Seton and Central Health, June 1, 2023
Commissioners order Central Health performance audit, again, October 3, 2022
Commissioners opt for tougher Central Health audit, August 3, 2022
Central Health sells $76 million of bonds for new real estate, September 1, 2022
Lawsuit challenges Central Health spending, October 18, 2017