PROVIDENCE – A senior official at Butler Hospital has confirmed that a plan to sell the hospital’s historic East Side campus and build a new facility near Rhode Island Hospital has been set aside “for the foreseeable future.”

Butler announced Monday that it wants to build a roughly $17 million, two-story facility on its campus with an expanded intake area and 26 new inpatient beds. A letter of intent has been filed with the R.I. Department of Health, and a certificate-of-need application is expected to follow in January, hospital officials said. The building is slated to open in June 2012.

The news raised questions about whether it would supersede an earlier plan Butler floated in July 2007, when its corporate parent, Care New England, announced that it would seek to merge with Lifespan Corp., Rhode Island Hospital’s parent.

The two companies said they envisioned selling the Butler campus – which occupies prime real estate east of Blackstone Boulevard – and moving the hospital to a new “academic medical center” complex built around Rhode Island Hospital and next-door Women & Infants.

At the time, Brown University was also looking for a new site for its Warren Alpert Medical School, and the two provider groups hoped the school would also be part of their campus, along with a brain science institute involving researchers at Brown, Butler and Rhode Island Hospital.

At least one reporter raised the question when Butler announced its new plan on Monday, but Dr. Patricia Ryan Recupero, the hospital’s president and CEO, was away, and no answer could be obtained. But on Tuesday, Walter Dias, chief operating officer, settled the issue.

“The plan was to either sell or develop” the East Side campus, he said, so Butler hired Cushman & Wakefield Inc., a New York real-estate services firm, to evaluate the property and make a confidential offering to a few potential buyers.

“Not surprisingly, given the economy, the response was practically negligible,” Dias told Providence Business News. The selling price would have been “nowhere near what we’d need to build a new hospital and also the brain science institute,” so “for the foreseeable future, that’s something that’s probably not viable,” he said.

Along with its own construction plans, Butler may seize other opportunities for developing land on the campus as they arise, Dias said. There are already two major tenants on the property: Laurelmead, a retirement community that leases land from the hospital, and University Orthopedics, he said.

One attractive prospect would be to build the brain science institute on the Butler campus if it comes to fruition and “people are amenable to that,” Dias said. And some land will always remain open, because the parcel extends to the Seekonk River and carries development restrictions.

Dias also offered further details about the newly unveiled construction plan.

The price, which the letter of intent put at $16.2 million, remains only an estimate, because there are no architectural plans, he said. And though the idea came out of discussions with state health officials, he said Butler has no assurance that the project will be approved.

Dias said Butler, which has 117 inpatient beds and manages another 29 for Kent Hospital, is used to operating at its licensed capacity, with seasonal spikes. But for the first half of 2009, it found itself consistently above capacity, so in July, it sought a variance from the Department of Health – official approval to operate this way.

The department did not grant the variance until December, and even then only through Dec. 31, Dias said. And Butler was told that if it expected the demand for extra beds to continue, it should file a certificate-of-need application to explain why. The department also said the plan must be “affordable.”

According to Dias, the growing need is a national trend, and many factors are at play, not the least of which is a reduction in the societal stigma surrounding mental illness.

“It’s more acceptable now to get the help that you need,” he said. “People realize it’s a medical condition, a condition of the brain that can be treated, and people just come out more.”

In fiscal 2009, Butler had 6,600 inpatient discharges, including the Kent beds, Dias said. That was up 9.7 percent from the previous year.

Hospital officials hope to get their certificate-of-need approved by May if all goes well, Dias said. In the meantime, Butler will also seek to extend its waiver if the high demand for inpatient services continues.

Additional information is available at butler.org.