Texas company sidesteps charity care requirement to reopen St. Dominic’s mental health unit

A for-profit, Texas-based company will reopen the shuttered St. Dominic’s psychiatric unit by the end of the year, though it will not have to provide the level of charity care deemed “reasonable” by the state.

Oceans received pushback from the Mississippi Department of Health and Merit Health Central concerning its plan to spend only two percent of its gross patient revenue on indigent and charity care – or free and low-cost medical care – in its application to open. 

Oceans and St. Dominic’s officials say that reopening the beds is a top priority and that the facility should not be required to provide a higher level of charity care. 

Mississippi’s certificate of need law requires medical facilities to seek approval from the state before opening a new health care center to demonstrate there is a need for its services. 

The State Health Department approved the company’s application last year under the condition it provide 17% free or low-cost medical care to low-income individuals. 

Rather than adhere to the state’s requirement, Oceans and St. Dominic’s Hospital filed for a “change of ownership” in February, bypassing the state’s charity care requirement altogether – and instead qualifying to open under St. Dominic’s existing certificate of need. 

Oceans plans to open the facility in November or December.

Facilities must provide a “reasonable amount of indigent care,” or “…an amount which is comparable to the amount of such care offered by other providers of the requested service within the same, or proximate, geographic area,” according to the state’s certificate of need guidelines. Nonprofit hospitals are required to provide charity care in order to receive federal funding. 

Health Department officials declined to comment when asked how they determine a “reasonable” amount of charity care. 

After the state made its recommendation in December, Merit Health Central, which operates a 71-bed psychiatric health hospital unit in Jackson, contested Oceans’ approval. 

Merit Health Central said that because its mental health unit uses 22% of its gross patient revenue to fund charity care, Oceans providing a lower amount of charity care would have a “significant adverse effect” on Merit by diverting more non-paying patients to its beds. 

Oceans and St. Dominic’s also opposed the state’s findings, arguing that requiring 17% charity care was unreasonable. 

A public hearing was scheduled for early April, but before it occurred, Oceans filed for change of ownership. 

The state approved the change of ownership application 11 days later. 

In response, Merit Health Central sued Oceans, St. Dominic’s and the State Department of Health in Hinds County Chancery Court, seeking to nullify the change of ownership.

The complaint argues that the Mississippi Department of Health should not have approved the change of ownership because St. Dominic’s psychiatric unit was not a separate facility with a separate certificate of need.

“The (change of ownership) filing and DOH approval … are nothing more than an ‘end run’ around CON law,” wrote Merit Health in the complaint. 

It also argues that by circumventing the public hearing process, Merit Health was left without an “adequate remedy at law,” forcing the hospital to turn to the court. 

Oceans, St. Dominic’s and the Mississippi Department of Health have filed motions to dismiss the case. 

Merit Health Central declined to answer specific questions for this article, pointing instead to the complaint and a letter opposing Oceans’ certificate of need application sent to the health department in November.

The Department of Health declined to respond to questions for this article, citing the open court case.

“The state has said, ‘Yes, you can reopen this hospital,’ and that’s what we plan on doing,” Oceans Chief Executive Officer Stuart Archer told Mississippi Today. 

He said the complaint does not bar Oceans from moving forward with its plans to reopen, and that Oceans has begun renovations to the 77-bed behavioral health unit, with six of the 83 licensed beds unused.

Oceans’ mental health unit will offer an intensive outpatient program and 25 geriatric beds. 

Massachusetts-based Webster Equity Partners, a private-equity firm with a number of investments in health care, bought Oceans in 2022. Oceans operates two mental health facilities in Mississippi and over 30 other locations in Louisiana, Oklahoma and Texas. 

Sixty percent of behavioral health care deals since 2018 involved private equity firms, according to Mary Bugbee of the Private Equity Stakeholder Project. Bugbee’s organization studies the private equity industry and its growing role in health care. 

“It’s not surprising that (Oceans is) trying to limit the charity care they provide because private equity firms are laser-focused on profit, and they’ll be better able to profit if they’re providing less charity care,” she said.

Oceans does not expect to break even in its first year of operation, in part due to renovation costs, but projects it will profit $1.7 million and $2.6 million in its second and third years, respectively, according to its certificate of need application. 

In its third year, Oceans forecasts it will spend $341,103 on charity care.

Bugbee said that her research has shown  private equity-backed health care companies use a variety of methods to increase revenues. “This can look like higher prices, bigger focus on commercial payers versus Medicaid or Medicare, understaffing or relying on untrained or unlicensed staff in certain areas,” she said.

She also noted that the companies often pull out after they get a return on their investment, usually after a period of four to seven years.

Archer, Oceans’ CEO, acknowledged that private equity is “the elephant in the room,” but said Oceans’ track record shows that they do business differently than other similarly financed companies. 

“Our thesis has always been, we’re going to do what’s right for the patient and what’s right for the community and that comes first. We’ve never taken a shortcut because of … our investors.”

Dave Estorge, St. Dominic’s chief operating officer, said the hospital was interested in working with Oceans after hearing about the company’s successes at its behavioral health hospitals in Biloxi and Tupelo. 

“Oceans is going to make a positive contribution to the community. If we didn’t think they would, we wouldn’t be leasing space to them,” he said.  

“…There aren’t a lot of government-owned facilities besides the State that are in the mental health business. And so if you’re looking to provide mental health services, your options are fairly limited. That’s who’s in this space right now.” 

He said that St. Dominic’s opposed the State Health Department’s determination for Oceans’ charity care threshold because of the “dangerous precedent” it set by requiring the hospital provide a particular percentage of charity care. 

“The concern is not the percentage, but just the arbitrariness and capriciousness of the placement of a requirement of uncompensated care that we have not seen (before),” he said. 

Estorge said he did not know the level of charity care the behavioral health unit provided before it closed last June.  

He said he hopes a new law that aims to limit people being jailed during the civil commitment process will help more uninsured people receive care through greater collaboration between crisis stabilization units and state hospitals. 

St. Dominic’s has struggled financially in recent years. The hospital’s most recent tax filing for the fiscal year ending June 2023 showed a loss of $91.6 million. 

Merit Health Central is owned by Tennessee-based parent corporation Community Health Systems, which has also suffered losses recently. In 2023, the company sold eight hospitals. 

In 2019, Oceans bought Merit Health Biloxi’s behavioral health operations. 

Latasha Willis, president of the National Alliance on Mental Illness Central Mississippi Affiliate, said she was treated at St. Dominic’s behavioral unit after she attempted suicide in 2002. 

“It was a great experience for me, and I would like to see other people who have been through what I’ve been through be treated as well as I was treated there,” she said. 

She said she is optimistic about Oceans’ mental health unit, but is concerned to hear about the facility’s limited proposed charity care. “The barrier to mental health care is cost,” she said. 

Angela Ladner, executive director of the Mississippi Psychiatric Association, said that though she could not speak to the direct impact of St. Dominic’s mental health unit closing, any facility closure is a strain on the mental health system in the Jackson area. 

“The number of people that need to be served has not changed,” she said. 

“…We certainly welcome [Oceans] to the community and would be happy to see those beds opened and utilized in an appropriate manner.” 

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