Steward eyeing R.I. expansion despite restriction

A potential twist is looming in Steward Health Care’s bid to purchase Landmark Medical Center in Woonsocket and the Rehabilitation Hospital of Rhode Island in North Smithfield for $71.6 million – one that has Steward exploring a possible legislative fix, according to three sources with knowledge of the discussions.
At issue is a provision in the Hospital Conversions Act that bars for-profit hospitals from making additional purchases of nonprofit hospitals in Rhode Island for three years after purchasing a nonprofit hospital.
In May, Superior Court Judge Michael A. Silverstein approved the purchase of Landmark Medical Center and the Rehabilitation Hospital of Rhode Island, which had been in receivership for about three years, pending state approval.
Steward’s bid to purchase Landmark is now being reviewed by state regulators – the R.I. Department of Health and the Rhode Island attorney general’s office – under the Hospital Conversions Act.
Meanwhile, a number of financially fragile nonprofit community hospitals – including Westerly Hospital and CharterCARE Health Systems (Roger Williams Medical Center and St. Joseph’s Health Services) and South County Hospital – have had discussions about partnering with Steward that are ongoing, according to two sources who confirmed the talks on condition of anonymity.
Steward’s Landmark purchase was never viewed as a “one and done” deal by Rhode Island health care industry observers, based on the company’s expansion strategy in Massachusetts, according to a source familiar with Steward’s negotiations with Landmark who asked not to be identified.
In the last year in Massachusetts, Steward, the for-profit hospital division of Cerberus Capital Management, a New York-based equity firm, has aggressively added four community hospitals to its growing network since purchasing six hospitals of the Caritas Christi Health Care System in November 2010. These include: Morton Hospital and Medical Center in Taunton, Merrimack Valley Hospital in Haverhill, Nashoba Valley Medical Center in Ayer and Quincy Medical Center in Quincy. In addition, Steward has moved into the health-insurance business, joining forces with Tufts Health Plan of Massachusetts in June 2010 to launch a new health-insurance product, Steward Community Choice, targeted at small businesses in Massachusetts. In order for the company to similarly expand, albeit much more slowly, in Rhode Island after purchasing Landmark, it would have to wait three years under current law.
Regarding the company’s interest in expanding in Rhode Island, Steward Health Care spokesman Christopher Murphy said: “Our focus is on finishing the acquisition of Landmark Medical Center. … We don’t discuss any acquisitions, or acquisition talks, until there is something finalized to report.”
R. Otis Brown, CharterCARE’s vice president of external affairs, in an emailed response, said, “It’s safe to say that everyone appears to be talking with everyone to review their best strategic options to ensure high-quality, safe patient care continues to be provided to those we have the privilege to serve. We are no different.”
Westerly Hospital, which is in ongoing, active discussions with Lawrence & Memorial Hospital in New London, Conn., about partnership, would not confirm or deny any conversations with Steward. “We have had discussions with a number of hospitals and systems over the past couple of years,” said Nicholas Stahl, Westerly Hospital spokesman.
South County Hospital President and CEO Louis R. Giancola denied having any conversations with Steward about it acquiring the South Kingstown hospital. “We have been in discussions with no one about being acquired, or acquiring other hospitals,” Giancola said.
That other nonprofit hospitals might be in talks with Steward does not surprise Sen. Joshua Miller, D-Cranston, chairman of the Senate Committee on Corporations.
“I have heard that every nonaffiliated hospital in Rhode Island is discussing affiliation with potential partners,” he said.
Miller, however, said he is not aware of talks about a potential legislative fix involving the Hospital Conversions Act’s three-year ban on new purchases.
“There’s a lot more to look at” than just that, Miller suggested, regarding potential purchases of other nonprofit hospital systems by a for-profit hospital system such as Steward. “We do not need to be rushing to a solution on the Hospital Conversions Act,” he continued, until there is an examination of how such an alignment would affect the state’s entire hospital system. Miller said that it might require a statewide plan for hospitals, looking at what kinds of services are offered to communities, as well as the corporate structures. Christopher Callacci, general counsel for United Nurses & Allied Professionals, Local 5067, the union representing more than 600 workers at Landmark Medical Center, declined to speculate about Steward’s future plans. Callacci reaffirmed that he believed that Steward was the “best bidder” for the hospital and that he hopes the purchase wins regulatory approval.
“Steward has demonstrated that they will follow through on the commitment to run Landmark as a full-service hospital,” he said.
Edward Quinlan, president of the Hospital Association of Rhode Island, declined to discuss the potential need for a change in the current three-year prohibition on nonprofit-hospital purchases in the Hospital Conversions Act, because “the premise [is] simply too hypothetical.”
Steward filed its application on Oct. 14 for state regulatory approval under the Hospital Conversions Act for its purchase of Landmark. The document, some 4,000 pages, filled seven binders, according to Annemarie Beardsworth, spokeswoman for the R.I. Department of Health.
The first step in the process was to make sure that nothing is missing. The state-agency regulators from the R.I. Department of Health and the R.I. attorney general’s office sent a letter to Steward on Nov. 10 saying that the current application was incomplete and requesting more information, a process that Steward spokesman Murphy described as a normal request for “clarifying information.”
Steward has 30 business days, or until Dec. 27, to respond, according to government officials.
Once the application is deemed complete, the state attorney general’s office and the R.I. Department of Health will have up to six months, or 180 days, to review the document and make a determination. •

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