Exempla Lutheran and Exempla Good Samaritan medical centers’ controversial evolution from sectarian community hospitals to Catholic-controlled institutions has created agreement about one thing.
It has been a very confusing process.
The strands of this Gordian knot are big business, health care, religion and nonprofit law.
The beginning: St. John’s Lutheran Church opened a sanitorium for the care of tuberculosis patients in 1903. When the not-for-profit Lutheran Hospital opened at the same site in 1961, it kept Lutheran in its name to honor its origins, but it was no longer tied to the Lutheran denomination.
This nonsectarian medical center — the only acute-care hospital serving Jefferson County — greatly expanded services over the decades.
In 1997, at a time when health-care interests were consolidating to better compete with for-profit hospitals and to negotiate more effectively with health insurance companies, Lutheran Medical Center decided to join with the large Kansas-based Sisters of Charity of Leavenworth Health System Inc., owner of Saint Joseph’s Hospital in Denver.
At the merger, Lutheran Medical Center governance underwent transformation. Officials created Exempla Inc., which would own and operate Lutheran Medical Center. It also would operate Saint Joseph Hospital, although it would still be owned by Sisters of Charity.
The combined Denver-area entity would be called the Exempla Healthcare System.
The joint operating agreement provided for two “sponsors.” The purpose of the dual sponsorship, original board members said, was to provide oversight that reflected and preserved two different heritages.
Exempla Lutheran was to remain a nonsectarian health-care provider. Exempla Saint Joseph’s was to remain Catholic and under the ethical and religious directives of the U.S. Conference of Catholic Bishops.
One belief system was not to be imposed upon the other, Exempla President Jeffrey Selberg said in 2008.
Sisters of Charity’s board named itself as its sponsor. To look after its interests, Exempla’s board picked a small nonprofit created in 1975 to serve as the fund-raising arm for Lutheran Medical Center. Its name changed to Community First Foundation in 2007.
Community First had its own board of directors and its own vision.
Exempla’s board included eight members picked by Exempla and seven picked by Community First.
Exempla Inc. then built Exempla Good Samaritan Medical Center, a nonsectarian hospital, that opened in Lafayette in 2004. This made the Exempla Healthcare System the third-largest system in Colorado, with annual revenue of $800 million.
Meanwhile, Community First had increased its total assets from $300,000 in 1975 to $54 million. It began to see its mission differently — as no longer just a hospital’s fundraising arm or sponsor.By 1999 it was contributing to education, arts, recreation and human services.
By 2005, the Exempla Health Care System determined it needed $1.4 billion in capital improvements, including up to $800 million to replace Saint Joseph’s aged plant and expand Lutheran and Good Samaritan.
At that point it became clear, said Sisters of Charity CEO William Murray that, for the Catholic entity to borrow and invest the amounts needed at Saint Joseph, it wanted control of the board and management of Exempla.
Sisters of Charity and Community First, the nonprofit created to safeguard Lutheran hospital’s interests, agreed that Sisters of Charity would become the sole sponsor controlling all three Exempla hospitals. It would pay a price representing one-half the value of the combined assets to Community First.
On Oct. 18, 2007, Sisters of Charity and Community First signed a contract in which the foundation would transfer its sponsorship — sometimes called membership interest — to Sisters of Charity for $311 million.
Community First Foundation, once an arm of Lutheran Medical Center, was now the brain.
The deal didn’t sit well a the time with the board and officers of Exempla Inc., who claimed, as owners of the assets of Exempla Lutheran and Exempla Good Samaritan, that their approval was required. They sued in January 2008 to stop the transaction.
“We think it’s totally inappropriate that both Community First Foundation and Sisters of Charity of Leavenworth are acting as owners. They’re not,” Selberg said.
The Citizens to Save Lutheran Medical Center expressed anger that Community First had abandoned its historic responsibility to Lutheran Medical Center’s heritage as a nonsectarian community hospital. Foundation officials said it was the only solution to a tough impasse.
“We knew capital was not going to be infused into the system if the transfer didn’t move forward,” Community First spokeswoman Jean Galloway said.
In February, the Sisters of Charity sucessfully petitioned District Court Judge William Robbins to compel binding arbitration instead of litigation.
The arbiter, William Meyer, reached his decision in June. He was not persuaded by Exempla’s claim that the transfer was contrary to the system’s charitable purpose. Nor did he find that the joint operating agreement required permanent maintenance of a “dual tradition” of nonsectarian and Catholic.
The transfer, Meyer said, did not conflict with Exempla’s bylaws. The transfer was not a sale of assets and did not require approval of the Exempla board.
Meyer, however, did find that Community First couldn’t transfer its membership to Sisters of Charity for money because that would violate the Colorado Revised Nonprofit Corporation Act.
Meyer also concluded that, once the transfer was complete, Sisters of Charity would have the exclusive right to amend Exempla’s bylaws.
In August Sisters of Charity announced it was sole sponsor. However, Community First reconsidered.
By mid-October, the foundation and Sisters of Charity agreed both would remain as co-sponsors of Exempla. They would have equal representation on a new Exempla board. Sisters of Charity would pick the chairman.
Together they developed new bylaws for Exempla. Under them, Exempla’s assets will remain Exempla’s assets, yet Exempla’s officers will be accountable to the new board.
Sisters of Charity will have operational control. The Catholic ethical and religious directives will be in effect at all three hospitals once regulatory approval is obtained.
With the decision of Community First not to transfer its membership interest, the attorney general’s office terminated its review.
Sisters of Charity spokeswoman Christine Woolsey said federal regulatory issues remain but are not expected to cause problems.
Sisters of Charity expects to take over operational control of Exempla Lutheran and Exempla Good Samaritan at the end of the year, Woolsey said.
Electa Draper: 303-954-1276 or edraper@denverpost.com
