Jewish leaders fear business merger could disrupt contract for traditional funerals

August 25, 2013

Jewish funerals are by tradition modest and inexpensive — no flowers, no viewing and just a plain pine box. And to encourage Washington’s Jewish community to follow these traditions, a local group has, for more than a decade, had a contract with a Silver Spring funeral home to provide basic Jewish funerals at a fixed, low price.

But Jewish leaders say that arrangement faces a serious threat: a transformational merger in the U.S. funeral business that, they worry, would spell the end of the contract, forcing families to pay higher prices and sort through difficult decisions while grieving and vulnerable.

Now, as federal and state antitrust officials review the merger of Service Corporation International (SCI), the country’s largest funeral home and cemetery owner, and Stewart Enterprises, the second largest, area Jewish leaders are lobbying hard to protect what they have.

Troubled by SCI’s track record, they have been writing letters to the Federal Trade Commission and meeting commission staff members, urging them to weigh any harm the deal would inflict on the local Jewish community. They are contacting elected officials for help, and some are encouraging their congregations to write, too. Several have urged regulators to require the sale of the Silver Spring business to a new owner before the merger can close — an approach that has been used with past SCI deals.

The contract was negotiated by the Jewish Funeral Practices Committee of Greater Washington, which represents 48 congregations in Washington and the Maryland suburbs. The group helps arrange funerals and teaches people about the rituals involved, and its sweeping, community-wide contract with the Hines-Rinaldi Funeral Home is thought to be unique in the country.

Hines-Rinaldi is owned by Stewart Enterprises, whose headquarters is near New Orleans. Denise Westerfield, communications manager for Stewart Enterprises, said Hines-Rinaldi would continue to honor the contract for the time being. But, she said, once the sale to SCI is complete, “the new owner of Hines-Rinaldi Funeral Home will have to decide whether or not to continue the contract.”

About 200 funerals are conducted each year under the contract, representing nearly a quarter of the Jewish funerals in the District and the Maryland suburbs, a committee official said.

“It provides people with what they need, and they don’t have to negotiate and they don’t have to feel guilty” about not spending more, said Rabbi Bill Rudolph of Congregation Beth El in Bethesda. “I worry that if this merger takes place, and all the funeral homes are under the same umbrella, that this kind of arrangement will disappear very quickly.”

SCI executives asked to meet with members of the Jewish Funeral Practices Committee and last month tried to reassure them about the contract. Company officials said that if SCI ends up owning the Silver Spring funeral home, it would honor the existing contract through June 2014 and for an additional two years, if the committee exercises its option to renew it, according to both sides.

After 2016, “we would come to the table very open-minded,” Lisa Marshall, a spokeswoman for SCI, said Wednesday. The funeral practices committee, she added, “represents a lot of people, and it’s a community that we’d like to continue to work with, I’m sure.”

But members of the funeral practices committee were not satisfied by SCI’s assurances, according to David Zinner, vice president of the group. “The process isn’t over. The process has barely begun,” he said.

Years of acquisitions have made SCI the dominant player in the U.S. funeral market, which still includes many small, family-owned businesses. Together, SCI and Stewart own 1,653 funeral homes and 515 cemeteries, and business is forecast to grow steadily with the aging of the baby boomers. Houston-based SCI said the deal would give it about 15 percent of the overall market and expected annual revenue of nearly $3 billion.

As Edmond DeForest, a Moody’s senior analyst, put it in a research note when the deal was announced in May, the merger “heralds the creation of a deathcare leader with over 10 times the revenue of its nearest competitor.”

Industry analysts expect antitrust officials to require that some properties be sold off to ensure competition in local markets. Overlap between SCI and Stewart in some parts of Texas and Florida make divestitures likely in those states, according to A.J. Rice, managing director at UBS in New York. Regulators may also look at the potential impact on funeral homes that serve particular ethnic populations, though forced divestitures in those situations are “pretty rare,” Rice said.

The two companies expect the FTC review to be complete in time for the merger to close late this year or in early 2014.

Deal keeps costs down

The agreement with Hines-Rinaldi guarantees members of any Jewish organization and their relatives a complete Jewish funeral for just $1,820. (Some things are extra, like an oversize casket or a limo.)

The contract also says that families are not required to visit the funeral home to make arrangements — a moment when industry critics complain that customers often feel pressure to spend more — and that billing will be delayed for at least 30 days after the burial, a traditional mourning period known as shloshim. The contract runs through June 2014 and can be renewed by the committee through 2016, with some price adjustments.

With costs at other funeral homes sometimes reaching $6,000, those involved say the contract saves consumers as much as $800,000 a year. The contract also fuels competition in the region, encouraging other funeral homes to lower the price charged for Jewish funerals, according to Bob Hausman, president of the funeral practices committee.

Local Jewish leaders point to several cases as a cause for worry that the contract could be in jeopardy if SCI takes control of Hines-Rinaldi.

Hausman said he invited an SCI-owned funeral home in Rockville, Edward Sagel Funeral Direction, to bid on a contract with the Jewish community in 2012. A Sagel associate made an offer that matched the price of the contract with Hines-Rinaldi but fell short in other areas, Hausman recalled. Among the differences: Only members of the 48 congregations would be eligible for the funeral packages, not their families, and the 30-day mourning period would not have been respected.

Separately, the B’nai Israel Congregation in Rockville has had a contract with the Sagel home for about a decade. Until recently, the contract set the rate for a basic Jewish funeral, including a coffin, at $2,350, according to Marc Barinbaum, chairman of the synagogue’s bereavement committee. But he said “things changed” when it was time to talk about renewing in 2012. The funeral home set the new price at $4,500, plus an additional fee for the coffin, adding at least $495 more to the price, Barinbaum said.

Barinbaum said he faced a “take it or leave it” attitude from SCI and signed a new contract in January 2013.

Edward Sagel, the funeral home’s founder, referred questions to SCI.

Marshall, the SCI spokeswoman, said Hausman’s description of the committee’s interaction with the Sagel home was “generally correct” and confirmed the details provided by Barinbaum about the B’nai Israel situation.

Past complaints

SCI has faced questions about its pricing practices at Jewish funeral homes in New York. In November 1999, then-New York State Attorney General Eliot Spitzer alleged that the company was charging higher fees in Manhattan and Brooklyn after acquiring independently owned Jewish funeral homes in the two boroughs.

Rather than bringing antitrust charges against the company, Spitzer’s office reached an out-of-court agreement with SCI that required the company to sell three of its funeral homes. The company did not admit any wrongdoing, and a spokeswoman predicted at the time that SCI would have won if Spitzer had brought antitrust charges.

Beyond concerns about its power in local markets, SCI has faced complaints about its handling of human remains and other practices.

A 2009 Washington Post story detailed allegations that hundreds of bodies were being mishandled at a Northern Virginia funeral home owned by SCI. The funeral home was penalized by the state under a consent order for violations that included improperly storing bodies in the facility’s garage and hallways. The company said the order was not an admission of guilt, but a way to put the issue to rest so the funeral home could focus on serving clients.

In the current antitrust review, regulators are hearing from officials across the region.

Rep. Chris Van Hollen (D-Md.) last month urged the FTC to “give thorough consideration” to the merger’s impact on Montgomery County’s Jewish community. Maryland state Sen. Brian E. Frosh, who represents Montgomery Country, has written to the FTC chairwoman as well. A spokeswoman for Sen. Benjamin L. Cardin (D-Md.) said his office has been contacted by constituents about the issue and is looking into it.

“We’ll meet with everybody we possibly can meet with,” said David Balto, an antitrust lawyer who is helping the funeral practices committee.

An FTC spokesman confirmed that an investigation of the merger was underway but declined to comment further.

Maryland Attorney General Douglas F. Gansler (D) said his office is “taking a thorough look” at the proposed merger.

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