Steward model would alter landscape

LANDMARK EVENT: If purchased by Steward Health Care, Landmark Medical Center would become a R.I. anomaly – a for-profit hospital. / PBN FILE PHOTO/DAVID LEVESQUE
LANDMARK EVENT: If purchased by Steward Health Care, Landmark Medical Center would become a R.I. anomaly – a for-profit hospital. / PBN FILE PHOTO/DAVID LEVESQUE

Rhode Island’s large, nonprofit health care providers were already bracing for a seismic shift in their industry due to federal reform efforts when self-described change-agent Steward Health Care came to Woonsocket.
The private-equity-owned, Boston company that has bought 10 Massachusetts hospitals – including St. Anne’s Hospital in Fall River and Morton Hospital in Taunton – wants to bring a new for-profit community health care model to historically nonprofit-dominated Rhode Island.
If its purchase of Landmark Medical Center in Woonsocket is approved by state regulators, Steward says it will pump money into the struggling hospital and make it attractive to local patients who now seek treatment at more expensive facilities.
And the company does not intend to stop with Landmark but to try buying other struggling Ocean State community hospitals, such as bankrupt Westerly Hospital, and bring them into an integrated system focused on accountable care, avoiding hospitalizations and lowering costs.
Whether it will work in Massachusetts or Rhode Island is a source of great debate, but it’s a vision that links with the national shift away from fee-for-service health care to a model based on lower costs and provider cooperation.
How Steward’s new paradigm will affect Rhode Island’s established academic hospitals and the nonprofit-owner networks, who foster research and are the largest private employers in the state, is a major concern to many in the health care industry, including some who say it could result in a loss of federal research dollars and commercially significant innovation.
Bond-rating agency Moody’s views the introduction of Steward into the Rhode Island health care ecosystem as a threat to nonprofit giants Lifespan and Care New England.
“For the larger higher-level or tertiary-service providers in New England, such as Lifespan and Care New England, the acquisition of small, nonprofit community hospitals by for-profit companies would change referral patterns in the state,” wrote Moody’s analyst Jenn Ewing in an April 24 report on potential expansion of Steward into Rhode Island. “We expect Steward to send patients to Massachusetts for higher-level care not offered at the community hospitals and larger providers in Rhode Island would likely experience fewer referrals for the tertiary services,” the report continued.
The report comes after Moody’s recently downgraded Lifespan’s bond rating to Baa1 stable, and as House lawmakers consider a bill sought by Steward and passed by the Senate that would allow for-profit companies to buy more multiple hospitals without a three-year waiting period.
As the region and nation work to lower health care costs and move toward a quality, instead of volume, medical-payment model, there are increasing questions about how large urban hospitals that provide vital safety-net and research services will be adapt.
“In the past some services that hospitals provide would make money, some would lose money, but they could cross-subsidize and come out alright,” said Marc Rodwin, professor of health law at Suffolk University in Boston. “What has happened with the competitive market is it is difficult to provide unprofitable services, especially when you have for-profits coming in.”
One way that large teaching hospitals paid for their less-lucrative functions was with government supplements. Another, especially among the Massachusetts health care giants like Partners Healthcare, was to use their size to negotiate higher reimbursement rates.
But the public’s desire to rein in health care spending, along with pushback from insurers and competition from for-profits like Steward, could make it more difficult for teaching hospitals to charge substantially more than smaller providers.
Rodwin said it is very difficult to predict exactly what impact Steward will have in Rhode Island without knowing specifically how the company intends to utilize a facility like Landmark. Forecasting exactly what Steward will do if it is allowed to buy one or more Rhode Island hospital is made more difficult by the fact that the company is only 18 months old and has a very short track record.
Ira Wilson, chair of Brown University’s Department of Health Services, Policy, and Practice, said he will be watching Steward with a mix of optimism – that it accelerates systemic reform toward more efficient, outcome-based accountable care – and fear that it could destabilize and weaken Rhode Island’s existing providers.
“Some of the positives are that, if they can do this, it can actually help health care in the state transition more quickly into a primary-care based, higher-value system,” Wilson said. “The downside is if they try to do more than they say and try to pull high-margin services like cardiology and oncology away, possibly into Massachusetts. That could be destabilizing. Specialty care leaving the state would not be good.”
Wilson said that while the vision described by Steward sounds good, the best elements of it would likely take five to 10 years to realize and it is unclear how long Cerberus Capital Management, the private-equity owners, will wait for a return on their investment.
“We really don’t know what they are going to do,” Wilson said. “It is a really big gamble.”
Gamble or not, the arrival of for-profit hospitals in Rhode Island looks likely.
The House is expected to take the hospital conversion bill up soon and, while it may see some changes, Speaker Gordon Fox supports the idea of for-profits being able to buy more than one hospital without waiting three years, spokesman Larry Berman said.
At Lifespan – which owns Rhode Island Hospital, Hasbro Children’s Hospital and The Miriam Hospital in Providence, plus Bradley Hospital in East Providence and Newport Hospital in Newport – recent declines in inpatient admissions show the business side of health care is changing with or without Steward, said Mark Montella, senior vice president of external affairs. “It didn’t surprise us if you think of it as a zero-sum game,” Montella said about the Moody’s downgrade and recent forecast. “With the population static and demand declining, if we are talking about patients moving from one hospital to another, then if there is an infusion of capital in one system, where will the patients come from? I think the implication is those patients would come from us.”
Lifespan, which itself continues to expand and this month announced that it would acquire Gateway Healthcare, doesn’t oppose Steward’s purchase of Landmark, but does not agree with completely lifting the multihospital-acquisition waiting period.
“In the midst of the seismic shift in health care, what is the bed complement we need in the state to maintain the academic medical centers with appropriate community beds, because they are both critical to provide the right balance,” Montella said. “It is a very difficult question and we don’t have a specific answer. We think it would be very useful to do an assessment to determine how we best get through this very critical time when providers are banding together in ways we have never seen before.”
Care New England, which owns Woman & Infants Hospital, Butler Hospital and Kent Hospital, supports the hospital-conversion bill that passed the Senate, but disagrees with the Moody’s analysis of Steward’s impact.
“We think that it was a theoretical outlook that does not contemplate the actions major health care organizations will have to take to stay healthy,” said Care New England spokeswoman May Kernan. “It is a rapidly changing world irrespective of a for-profit entry into this market.” •

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