[co-author: Stephanie Kozol]*
Recently, a matter involving the North Carolina Attorney General (AG) Josh Stein made headlines when it was announced that Affiliated Monitors Inc. would take over monitorship of HCA Healthcare. This relates to HCA’s compliance with the conditions set forth in an asset purchase agreement involving six North Carolina hospitals it acquired when it purchased Misson Health System in 2019 for $1.5 billion.[1] In addition to approving the asset purchase agreement, Stein sued HCA in a separate matter at the end of 2023 based on allegations of mismanagement, including inadequate staffing and lack of sterile equipment among other cost-cutting measures. While HCA is seeking dismissal of the lawsuit, in the asset purchase matter, both HCA and Stein consented to the use of a monitor, as well as this change. Stein stated, “[a] strong, independent and transparent monitor will go a long way in ensuring that HCA upholds it commitments” and “ensur[ing] that the people of western North Carolina have access to high-quality health care.”
The headlines and Stein’s comments highlight a major advantage of monitorships for regulators seeking to enforce laws and regulations, as well as settlement and court orders, and, in this instance, as part of the approval of an asset purchase agreement. Over the past two decades, independent compliance monitors have become a frequently used tool for state and federal law enforcement authorities. Federal criminal prosecutors began using monitors in the mid-1990s and monitorships became increasingly popular with high-profile corporate misconduct cases like Enron. For state AGs, monitorships proved to be particularly useful with major settlements that established new, industrywide standards. For example, in 1998, 46 state AGs negotiated the Tobacco Master Settlement Agreement through which tobacco manufacturers agreed to pay $206 billion to the states over a period of 25 years, along with sweeping changes to advertising and other business practices. Rather than having each individual state AG office expend significant resources monitoring all tobacco manufacturers for compliance, the AGs could work with an independent monitor to lessen the burden and costs of ensuring compliance.
And, as Vin DiCianni, the president of Affiliated Monitors, Inc., has opined, using a monitor can also be good for regulators and the companies they oversee. As he explained in an episode of Regulatory Oversight, a monitorship is a sort of “alternative sanction.” A company may make a mistake that does not warrant the typical sanctions available to regulators like a suspended license or civil penalties. A monitorship allows the company to productively remedy the issues that led to legal action and stay in business.
DiCianni also explained that, as in the HCA example, Affiliated Monitors Inc. is seeing more and more cases in which a monitor is brought into a matter where conditions are established by a government agency regarding the approval of a merger or acquisition. He explained that the approval of a merger or acquisition, with conditions that need to be completed, often utilizes an independent monitor to oversee the fulfillment of those conditions: “an independent monitor offers an objective view of whether the conditions are being met in a timely and meaningful way. It allows the parties to the merger to move forward, and demonstrate that they take serious the conditions and are working to make the merger successful.” He further explained “that independent monitoring should not be seen in the negative light that sometimes it is, and it really should be seen as a resource for, number one governments,” particularly government agencies , “and others, because it should be considered part of the resolution.”
As the HCA case continues through the court, it will be particularly interesting to see what role, if any, the monitorship will play in the outcome of the case. Perhaps Stein will drop his suit if Affiliated Monitors determines that the company has complied with its obligations under the relevant asset purchase agreement. Or, if not, perhaps the parties can reach a settlement with injunctive terms related to any deficiencies the monitor finds in HCA’s practices. At a minimum, the use of a monitor is certainly helping the parties gather information and demonstrates the advantages of using a monitor for both the AG, the hospitals, and community in rural North Carolina.
[1] Gianna Ferrian, NC AG Greenlights New Monitor For HCA Hospital Amid Probe, Law 360 (Apr. 3, 2024), https://www.law360.com/compliance/articles/1820722/nc-ag-greenlights-new-monitor-for-hca-hospital-amid-probe.
*Senior Government Relations Manager
