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News Release

For Immediate Release
May 21, 2010

Director of Charitable Trusts Michael S. DeLucia
(603) 271-3591

Report of the Director of Charitable Trusts Regarding the Proposed Acquisition Transaction Between CMC Healthcare System and Dartmouth-Hitchcock Health

On May 21, 2010, The Office of the Attorney General, through the Director of Charitable Trusts (the "Attorney General"), released its Report on the proposed acquisition transaction between Dartmouth-Hitchcock Health ("DHH") and CMC Healthcare System ("CMCHS") Adobe Acrobat Reader Symbol. At its essence, the Transaction reorganizes the corporate structures of CMCHS, and its affiliates, Catholic Medical Center ("CMC") and Alliance Health Services ("AHS"), resulting in these organizations ceding control to DHH and becoming a part of a regional integrated health care delivery system overseen and controlled by DHH.

New Hampshire RSA 7:19-b IV provides that within 120 days from receipt of a notice of a proposed transfer of control of a health care charitable trust, the Attorney General shall determine whether the health care charitable trusts' boards of trustees have fulfilled their fiduciary standards. The Attorney General must determine either that no further action will be taken, or that the Attorney General objects to the transaction on specified grounds. The law sets forth specific standards to be considered by the Attorney General in his review.

Having reviewed the documents submitted by DHH and CMCHS, heard testimony at public hearings, reviewed comments submitted to the Attorney General and participated in numerous meetings, the Attorney General objects to the Transaction on three grounds.

First, the Transaction is not permitted by applicable law. The Transaction would result in DHH obtaining control over core functions of the CMC Charities, which until this point have operated as an independent Catholic hospital. The Attorney General concludes that the Transaction will result in a profound change to the governance structure of the CMC Charities and diminish the fiduciary duties of the Boards of Directors of the CMC Charities which will inhibit the ability of the CMC Charities to carry out their charitable missions. The Attorney General also concludes that Probate Court approval of this transfer of control would be necessary in order for it to be permitted under New Hampshire law.

Second, the Attorney General objects to the Transaction because the Parties have not provided adequate information upon which the Attorney General can determine whether it exercised due diligence in determining whether the Transaction is in the best interest of the health care charitable trust and the community which it services. Specifically, the Parties have not demonstrated due diligence in determining the effect of the Transaction on the cost of delivering health care.

Third, the Attorney General has concluded that while the consideration exchanged in connection with the Transaction constitutes fair value, the Attorney General objects to the Transaction as there are insufficient safeguards in place to ensure that the calculation of the Post-Affiliation Surplus is not subject to manipulation or abuse by the Parties.

The Attorney General also reviewed the employment agreements for certain executives of DHH and CMC. Salaries are disclosed annually to the Attorney General. CMC's Form 990 was due to the Attorney General on November 15, 2009 for the fiscal year ending June 30, 2009. CMC sought an automatic extension, and its Form 990 was not delivered until May 17, 2010. Based on the IRS Form 990s filed by CMC, the compensation of the President and CEO of CMC was as follows:

Fiscal Year Compensation Alyson Pitman-Giles Compensation as a % of Operating Revenue
2006 $540,736 0.28%
2007 $695,803 0.33%
2008 $907,604 0.38%
2009 $1,359,848 0.51%

A comparison of Ms. Pitman-Giles' total compensation with other hospital presidents in the region reveals that Ms. Pitman-Giles' compensation is significantly greater than her peers based on total compensation and as a percentage of operating revenue. The reasonableness of the compensation paid to Ms. Pitman-Giles is an area of significant concern to the Attorney General.

One of the basic duties of the governing board of a charitable organization is to establish reasonable compensation. Integrity, stewardship and accountability are the fundamental precepts that govern decisions made by any charitable board of directors, including executive compensation. Attorney General Michael Delaney said "nonprofit leaders must be aware that they are the stewards of the charitable asset they oversee, and those assets are held in trust for charitable purposes, not individual gain."

The review that is the subject of this Report is limited to the statutory factors listed in RSA 7:19-b. Ms. Pitman-Giles' compensation was established by the CMC Board of Directors prior to the Transaction, and the Transaction does not directly affect her salary. Because the Transaction itself does not result in a pecuniary benefit to Ms. Pitman-Giles, her salary is not a basis to object to the Transaction. Her salary, however, will be separately reviewed under the statutory and common law authority of the Attorney General, and a separate determination will be made regarding the compensation paid to executives at CMC, as well as the executives of other hospitals in New Hampshire.

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New Hampshire Department of Justice | 33 Capitol Street | Concord, NH | 03301
Telephone: 603-271-3658