Sometimes doing the right thing for the right reason can be costly.  Last week it cost nonprofit Via Christi Regional Medical Center $59 million.

In 1995 two Wichita hospitals, St. Francis and St. Joseph, consolidated to create Via Christi.  For the two decades since then, Via Christi—as successor of St. Francis—has been pursuing a claim for a $59 million loss on the consolidation transaction.  The basis of its claim is the Medicare regulation allowing a claim for a loss on the sale of an asset.

The fiscal intermediary denied the claim, on the basis that the two hospitals were related to each other before the consolidation, and the rules don’t permit a claim on a loss between related parties.  On appeal, the Provider Reimbursement Review Board reversed, finding that the two organizations were not related before the consolidation.  The CMS Administrator overturned that decision, ruling that they were related.  The Administrator also ruled that the consolidation was not a “bona fide sale,” as required by the regulations.

Why wasn’t it a bona fide sale?  Because the true motivation wasn’t financial, but rather St. Joseph’s desire to “advance its ministry.”  How did the Administrator know that?  Two ways.  First, in an arm’s‑length transaction, St. Joseph would never have assumed St. Francis’s hefty liabilities in return for its meager assets.  Second, St. Joseph “admitted” being motivated by its ministry (an interesting use of the verb “admit”).

Last Friday the federal district court for the District of Columbia agreed with the Administrator, upholding the Administrator’s denial of the claim.

The case is Via Christi Reg. Med. Ctr. v. Burwell, Case No. 1:09-cv-02060-CKK.