By Ted Clifford
In 2018, the North Carolina Attorney General’s Office waded into the contentious sale of the nonprofit Mission Hospital to healthcare giant HCA. The office had concerns about the sale. Eager to get the deal done, HCA made concessions.
The Nashville-based company agreed to keep rural satellite hospitals open for 10 years, not just five; across the system services and facilities would be maintained. HCA also agreed to the appointment of an independent monitor to make sure that they were following the agreement – and the agreement empowered the attorney general to sue them if they weren’t.
In December 2023, the attorney general’s office did just that. Brought by then Attorney General Josh Stein, now governor, and continued under Attorney General Jeff Jackson, it accuses HCA and Mission Hospital of violating the asset purchase agreement by effectively discontinuing emergency and oncology services at the hospital in 2023.
But now, three years into the lawsuit, HCA is claiming that the office does not have the constitutional authority to sue them for violating what they describe as a contractual dispute.
“Neither the North Carolina Constitution nor any statute authorizes [the attorney general] to sue a private buyer on behalf of a private seller,” attorneys for HCA argued in a motion to dismiss filed October 15.
The motion comes after a judge’s order in July handed key wins to the attorney general’s office and cleared the way for trial. It was filed the same day as two other motions from HCA. These were a motion to split the trial in two and a motion to reconsider a previous ruling on a key phrase in the asset purchase agreement.
“‘Grasping at straws,’ comes to mind,” said State Senator Julie Mayfield, an attorney and founder of Reclaim Healthcare WNC. “They didn’t win on the summary judgment, so they’re trying any argument that they can to try to get out from under potential liability.”
Mission Hospital and HCA did not respond to the Asheville Watchdog’s request for comment.
While lawyers for HCA acknowledge in their motion that the contract gave the attorney general the right to sue, they are seeking to challenge the lawsuit on a more fundamental level.
“Contractual right cannot serve as a substitute for the official authority the attorney general needs to bring this suit,” lawyers for HCA and Mission wrote. The motion asks Judge Mark Davis, who recently inherited the case on the retirement of Judge Julianna Earp, to dismiss the case for lack of jurisdiction on the attorney general’s part.
The attorney general’s office also did not respond to a request for comment
The motions were filed by law firms Latham & Watkins, Kirton McConkie, and Asheville-based law firm Roberts & Stevens, which represents Mission.
“You don’t get to sign something and respect that agreement for seven years, and then suddenly show up and say, ‘Hey, you don’t have any authority to do this,’” Mayfield said.
What did HCA agree to?
While the deal that emerged from the sale of Mission Hospital to Nashville-based HCA Healthcare has often been criticized as too soft, Mark Hall, a professor of law at Wake Forest who authored an article on the sale, found that the attorney general imposed unusually strong restrictions.
The North Carolina attorney general has the power to review the sale of nonprofit hospitals. However, their scope is normally limited to ensuring that the assets of the sale are being appropriately transferred into a new nonprofit. In this case, that was the future Dogwood Health Trust.
But during negotiations for the sale of Mission, the attorney general’s office became concerned, according to internal documents. The office “determined that [Mission’s] board appeared to be overly influenced by the views of the hospital’s CEO [Ronald Paulus],” Hall wrote.
Paulus and the hospital’s chief consultant on the sale also had “potentially serious conflicts of interest (in the form of prior or anticipated business dealings with HCA) that had not been adequately disclosed to the board,” Hall wrote in his report, “Lessons Learned from HCA’s Purchase of Mission Hospital in Asheville, North Carolina.”
This prompted the attorney general to take what Hall described as “fairly aggressive action.” After more rounds of negotiations, HCA and Mission agreed to keep services and hospitals open for 10 years and to allow an independent monitor to ensure they kept their commitments.
To enforce these provisions, the final draft of the asset purchase agreement gave the attorney general the right to sue to enforce the agreement on Dogwood’s behalf. This right has not been in dispute up until now.
The purchase agreement allowed the attorney general’s office to be a “third party beneficiary” to aspects of the deal. Typically, a third party beneficiary does not sign a contract, but they are allowed to enforce it.
The conditions of the deal “equal or exceed the strongest examples that can be found from other such transactions,” Hall wrote.
Until this filing, the Watchdog has been unable to find any public statements from HCA or Mission that they believed the attorney general did not have the right to bring a lawsuit. At a public forum earlier this year, representatives of the independent monitor told community members that Dogwood and the attorney general’s office were responsible for enforcing the purchase agreement.
Representatives of Mission who were present did not object.
“Even in the public sphere I’ve never heard of anyone even hint at the idea that the attorney general was acting improperly with this lawsuit,” said Aaron Sarver, a spokesperson for Reclaim Healthcare.
Other motions seek new showdown over key phrase
The motion to dismiss was accompanied by motions to bifurcate the trial as well as a motion to reconsider Earp’s decision on summary judgment.
Both motions concern a key requirement of the asset purchase agreement: that HCA “shall not discontinue the provision” of certain services.
In their motion to reconsider, lawyers for HCA asked the court to withdraw Judge Earp’s summary judgement that that “provision” required Mission Hospital to “to take all steps necessary to actually provide the services” in the purchase agreement.
“This… ruling is not a matter of simple semantics — if “provision” means what Judge Earp said it means, it will substantially and materially impact the day-to-day operation of Mission Hospital,” HCA’s attorney wrote.
The motion to reconsider is closely linked to the motion to bifurcate the trial. In seeking to split the case into two trials, attorneys for HCA argued that the first phase of the trial should be to determine the meaning of the phrase “shall not discontinue the provision.” The second phase should be to determine whether the company breached that provision.
Doing so would “achieve efficiency and avoid hearing weeks of evidence that ultimately may prove to be irrelevant,” HCA’s attorneys argue.
Asheville Watchdog is a nonprofit news team producing stories that matter to Asheville and Buncombe County. Ted Clifford is The Watchdog’s investigative reporter focusing on healthcare. He can be reached at tclifford@avlwatchdog.org. The Watchdog’s local reporting is made possible by donations from the community. To show your support for this vital public service go to avlwatchdog.org/support-our-publication/.
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