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Once again, Landmark Medical Center in Woonsocket became a spurned merger partner, left waiting on the hospital front steps, only to be rescued by a previous suitor.
After a 15-month courtship, Steward Health Care of Boston, a for-profit, 11-hospital system owned by a private-equity firm, Cerberus Capital Management in New York City, got cold feet and bowed out on Sept. 27. Steward itself had been a last-minute partner, agreeing to buy Landmark after three potential suitors had backed out in May 2011. Previously, the Caritas Christi hospital chain, which Steward purchased in November 2010, had been engaged in exclusive talks to buy Landmark, but they had backed out in December 2010.
Now former Landmark suitor Prime Healthcare Services, a for-profit hospital system in Ontario, Calif., has agreed to buy Landmark, signing an asset-purchase agreement on Sept. 28.
What went wrong for Steward? Company spokesman Christopher Murphy has declined to speak with Providence Business News. According to Steward’s statement issued on Sept. 27, the blame for the demise of the sale lay with unnamed “private health care entities” that prevented Steward from moving forward with its model for health care service delivery.
However, Charles T. “Chuck” Jones, president and CEO of Thundermist Health Center in Woonsocket, and an informed observer of the situation, has some ideas.
“I think it didn’t work for two major reasons,” Jones said. “First, Steward was not able to assemble a multihospital network that could increase its market-power with payers.”
Second, he believes, “Steward expected that increased Blue Cross [& Blue Shield of Rhode Island] reimbursement would essentially pay for the acquisition and the profit levels demanded in private-equity markets. When the potential for the commercial payments they wanted didn’t materialize, they pulled out.”
Steward had invested significant time and resources to establish a foothold in the Rhode Island health care delivery market. Steward had led lobbying efforts to amend Rhode Island’s Hospital Conversions Act to allow it to purchase other nonprofit hospitals in Rhode Island without a three-year waiting period. It had successfully completed lengthy state regulatory reviews by the R.I. Department of Health and the Rhode Island attorney general’s office, emerging with a deadline set for purchase of July 27.
Reaching a deal with Blue Cross had never been a contingency of the asset-purchase agreement, but it proved to be the deal’s major stumbling block, leading to events that Superior Court Judge Michael A. Silverstein characterized as “missteps” by everyone involved.
First, Landmark and Blue Cross were unable to reach agreement on extending its current contract, which expired July 16. Blue Cross sent out notices to its members, as required by Rhode Island law, saying that the contract would expire Aug. 1 and Landmark would no longer be part of the Blue Cross network.
Steward then produced a provocative advertising campaign directed against Blue Cross, claiming that the health insurer had put Landmark on “life support” and now it wanted to “pull the plug.”
The tipping point for Steward appears to have been the breakdown in negotiations with Blue Cross, at an Aug. 6 session convened by R.I. Attorney General Peter F. Kilmartin. This led to an exchange of letters between Kilmartin and Steward CEO Dr. Ralph de la Torre, subsequently leaked to the news media on Aug. 20.
Efforts to mediate between Blue Cross and Steward, led by retired Supreme Court Chief Justice Frank Williams, also failed, according to Savage.
“We believe that Steward was not collaborative and didn’t recognize the efforts needed in our state that will help reduce the cost of health care to Rhode Islanders,” said Blue Cross spokeswoman Kim Reingold. According to Blue Cross, Steward refused to accept the affordability standards required by the R.I. Office of the Health Insurance Commissioner.
Emily Martineau, spokeswoman for Kilmartin, said that it was more important than ever to ensure that the next suitor, Prime Healthcare, is serious and qualified.
Prime Healthcare had initially bid $58.5 million to buy Landmark in April 2011. Prime Healthcare’s new agreement includes $30 million of investment in Landmark’s facilities over the next five years, $4.5 million for physician recruitment and another $15 million in additional investments.
Prime Healthcare has been under investigation in California from both state and federal authorities regarding allegedly fraudulent billing practices for both Medicaid and Medicare patients.
Edward Barrera, spokesman for Prime Healthcare, disputed the charges, saying that the allegations were part of an anti-corporate campaign that grew out of a union-related dispute.
The company is eager to fill the vacuum left by Steward’s departure.
“Prime Healthcare understands how vital acute-care hospitals such as Landmark Medical Center are to the community,” said Dr. Prem Reddy, company chairman, president and CEO.
The sale of Westerly Hospital to Lawrence & Memorial Hospital in New London, Conn., offers a stark contrast to Landmark’s experience. Westerly Hospital, which entered receivership in December 2011, had its sale approved on Aug. 30 by Superior Court Judge Brian Stern. Having filed and been approved for a 90-day expedited review by state regulators, W. Mark Russo, the appointed special master, said he expected the deal to be approved and finalized by the end of January 2013. “I believe that we have created a template for how to move forward with hospitals in receivership,”
One of the effective strategies pursued by Russo was to create collaborative stakeholder groups to build consensus, engaging with the Westerly community, with Westerly Hospital doctors and nurses and with state regulators, according to Stern.
Another difference was that Russo chose to conserve limited resources and not to engage a public relations firm, instead handling press inquiries through his office and with existing hospital personnel.
In contrast, Savage has employed Bill Fischer, of True North Communications for more than four years. Fischer, through his firm, receives a $9,000 monthly fee, according to court reports.
Fischer defended his role’s importance. “In many respects, Landmark has been the guinea pig,” he said, comparing it to Central Falls, the first Rhode Island city to declare bankruptcy.
The mastership process, he continued, has kept the hospital open and preserved more than 1,000 jobs. “It’s been a long, long road for the employees. I don’t think they’ve gotten enough credit.” •