Commentary: Affiliation shifted balance of power away from Hoag

Hoag has affiliated itself with the Roman Catholic St. Joseph Health System (SJHS), seemingly on an equal partnership bases.

But SJHS appears to have so much veto power over Hoag Hospital decision-makers that it puts Hoag into a subservient position.

So, just how much say does Hoag have now that it effectively is a junior partner to SJHS?

Consider the conditions listed in the study released by the Office of the California Attorney General regarding Hoag affiliating with St. Joseph. The study contains a 50-item summary of the “Affiliation Agreement.” Some of the items are noted here to show the subservient relationship of Hoag to SJHS.

In a nutshell, the power relationship defined in the Affiliation Agreement looks like this: At the top, SJHS’s board of directors controls an entity called Covenant Health Network Inc.

In turn, Covenant exerts control over Hoag. Hoag is at the bottom.

SJHS’s board influences Covenant in several ways. One is that Covenant’s CEO must be an employee of SJHS. And an impact of this is, given that Dr. Richard Afable, the former Hoag president and CEO, is now CEO of Covenant, he must now be an employee of SJHS and necessarily act in its best interests.

Further, SJHS can outvote Hoag on the Covenant board. A clearly stated condition of the affiliation is that SJHS “shall at all times have the right to designate at least a majority of Covenant’s Board.” (The Covenant Board “… shall consist of seven members: four members designated by SJHS and three designated jointly by the Association of Presbyterian Members and the Hoag Family Foundation [Hoag].”)

Going down a level in the power structure, Covenant influences Hoag by having the power to veto Hoag’s major decisions. A supermajority of Covenant’s board is needed to approve the following Hoag actions: “Any restatement, modification, or amendment to the Hoag Articles of Incorporation or Bylaws”; “The appointment and removal of Hoag Board members”; and “The appointment and removal of the Hoag CEO.”

In addition to this direct control of Hoag by a SJHS-majority Covenant, SJHS directly influences some important aspects of Hoag’s operations. For example, it needs to approve Hoag’s capital expenditures.

Nowhere in the Affiliation Agreement is found any statement giving power to Hoag over SJHS.

T0M EGAN lives in Costa Mesa.