Idaho Attorney General's Office says St. Luke's tax deals illegal

The Idaho Attorney General's Office has three words to describe contracts Idaho's largest hospital system has with special taxing districts in Southwest Idaho: "unlawful and unconstitutional."

At issue are two former community hospitals, one in McCall and one in Mountain Home, that St. Luke's has acquired, and a third one in Weiser that it is poised to acquire.

The hospitals had been owned for decades by taxpayers in special "hospital taxing districts" that collected property taxes and used the money to provide medical care to patients who can't or won't pay their bills.

The Statesman reported Jan. 18 that under the deals, the districts stay in place and continue to collect taxes - about $3 million among the three of them - but remit those dollars to St. Luke's. The private, nonprofit health system must continue to use the tax dollars for patient care in those communities.

State lawyers want St. Luke's and the districts to alter the deals and have drafted a lawsuit in case they don't. The deals violate Idaho law "in at least four different ways," Consumer Protection Division Chief Brett DeLange wrote in a Jan. 9 email to lawyers for St. Luke's and the Weiser taxing district.

St. Luke's Health System and the districts say the deals are completely legal. They're working with the Attorney General's Office to settle the dispute.

St. Luke's recently lost an appeal of a lawsuit by Attorney General Lawrence Wasden and several other parties after a different St. Luke's acquisition - that of Nampa's Saltzer Medical Group. A judge ruled that the takeover violated antitrust law.

What's illegal about the small-hospital deals?

The objections fall under the theme of hospital districts not being allowed to sell off a hospital, tax the public and give the money to a private corporation, even a nonprofit one such as St. Luke's.

According to the draft lawsuit:

The hospital districts violated the state constitution's prohibition on incurring debt for longer than one year without securing a two-thirds majority in a referendum.

Tax revenues cannot directly benefit corporations.

The state constitution prohibits "governmental entities from lending or pledging the credit or faith thereof in aid of corporations for any amount and for any purpose."

The deals failed to ensure the hospital districts would retain a "just proportion" of the taxpayers' investment in the districts' hospital assets.

Why were the hospitals sold to St. Luke's?

The hospitals were having trouble keeping up with changing technology and health-insurance payments.

"This agreement is, from a consumer standpoint, a win-win for the people in this community," McCall District Chairman Derek Williamson said. If St. Luke's were to stop owning the hospital, "the economic impact and the health care impact would be negative on Valley County. ... It doesn't take a rocket scientist to figure out it would have some effect."

What do St. Luke's and the hospital districts say about the state's view?

An email from Patrick Miller, a Givens Pursley attorney representing the Weiser district, argued that the Weiser agreement did not break the law. The district doesn't go into debt and has no obligation to St. Luke's, the email said.

That agreement is essentially the same as those St. Luke's signed with McCall and Elmore County hospital districts.

"We definitely looked at those issues beforehand and felt comfortable that the tax districts had the authority to enter into the agreements," St. Luke's chief attorney Christine Neuhoff said. "It turns out the Attorney General's Office has a slightly different interpretation of the law."

What's going on behind the scenes?

The Weiser acquisition that was scheduled to close April 1 is on pause for now. That's not just because of legal issues, though, a lawyer said.

Miller thinks the Weiser contract will be resolved. St. Luke's, taxing district representatives and state lawyers have been meeting.

"I'm pretty confident we will get there," he said.

Audrey Dutton: 377-6448, Twitter: @IDS_Audrey

This story was originally published February 24, 2015 at 12:00 AM with the headline "Idaho Attorney General's Office says St. Luke's tax deals illegal."