Bids sought for Westerly Hospital

COURTESY THE WESTERLY HOSPITAL
FOR SALE: Special Master W. Mark Russo is preparing to accept bids to buy financially ailing Westerly Hospital. The hospital went into receivership on Dec. 6, 2011.
COURTESY THE WESTERLY HOSPITAL FOR SALE: Special Master W. Mark Russo is preparing to accept bids to buy financially ailing Westerly Hospital. The hospital went into receivership on Dec. 6, 2011.

A special master overseeing the finances of The Westerly Hospital is preparing to receive formal offers to buy the troubled facility, which went into receivership on Dec. 6.
Special Master W. Mark Russo on Feb. 28 was due to seek permission in Washington County Superior Court to begin the official process of accepting proposals to purchase the hospital. He’ll also seek permission to hire a consultant to market the hospital and review proposals, he told Providence Business News.
Russo, a Providence lawyer, says the hospital’s location makes it attractive to potential buyers.
“Westerly Hospital is unlike most hospitals in the state,” he said. “It’s a remote location and fairly isolated when compared to Providence, where there are several hospitals. That fact alone makes it very attractive to a potential buyer.”
The lack of a competing hospital in the same town also makes a sale crucial to the community, he acknowledged, and something he’s already begun working on.
“It’s very important to the community that the hospital remains open, or people would have to drive 20 miles in any direction for health care,” he said.
“The first thing we needed to do was to ensure [the hospital’s] financial stability, so $3.3 million has been set aside to cover operational costs,” he said. “Once we secured its ability provide care and serve the community, we started to approach other hospitals to solicit their interest.”
Although Russo has previously identified Lawrence & Memorial Hospital of New London, Conn., and Yale-New Haven Hospital as hospitals of interest, he declined to name additional health care providers with which he has had discussions, but said he has met with several institutions, both in Rhode Island and out of state. One health provider he declined to name has even submitted a preliminary plan to his office, signifying interest in a sale.
In August of last year, Lawrence & Memorial and Westerly Hospital began a due-diligence process to determine if a merger or affiliation would benefit both facilities and their communities. Those discussions came to an immediate end once Westerly announced its receivership.
Lawrence & Memorial, however, may still be interested in Westerly Hospital. The hospital’s board of directors has authorized Bruce Cummings, Lawrence & Memorial’s president and chief executive officer, to hire a financial consultant to investigate the situation, according to Michael O’Farrell, director of public relations. The consultant has yet to be hired.
“[Russo] has asked us to engage with him about there being some type of purchase of the remaining assets of Westerly,” O’Farrell said. “The consultant will help us determine which assets interest us and which liabilities would cause some concern. We will not get involved unless we are absolutely sure it will have no adverse impact on our hospital and those we serve.”
Edward J. Quinlan, president of the Hospital Association of Rhode Island, said Westerly Hospital is just “the latest example of the severity of the financial distress Rhode Island hospitals have been under for the last 15 years. Compared to national margins, our hospitals have been underperforming,” he said.
The most recent data from 2010 indicated that on average, the nation’s hospitals experienced a profit margin of 7 percent. In Rhode Island, it was five-tenths of 1 percent. For fiscal 2011, from Oct. 1, 2010 to Sept. 30, 2011, Rhode Island hospitals recorded a negative profit margin. In 2010, net income for the state’s hospitals was $31.46 million, according to Quinlan. In 2011, it was an overall loss of $11.75 million, he said. “When the majority of the hospitals lost money last year, you know that it is not an isolated situation,” he said.
Quinlan points out that Westerly is one of two hospitals in the state to file for receivership in a three-year period. In June 2008, Superior Court Judge Michael A. Silverstein appointed Jonathan N. Savage as temporary special master to oversee Landmark Medical Center in Woonsocket. Savage’s task was to push for a potential merger or sale.
Boston-based Steward Health Care Systems and Landmark proposed a merger in October 2011. In January, the Rhode Island Department of Health and the Department of Attorney General deemed the merger application complete. The two departments now have 180 days to review the information. “There are other hospitals that have seen significant operating deficits in recent years that are attempting to stabilize themselves financially in order to get through what has been a very difficult time,” he said. According to Quinlan, problems with the industry began with the decline of Medicare reimbursement when Congress adopted the Balanced Budget Act of 1997. At that time, hospitals received $1.14 for every dollar of care it provided. That amount is now $0.91.
Historically, Rhode Island margins on payments from commercial insurers have been below those of neighboring states. Recently, Medicaid has reduced payments as well, meaning that both Medicare and Medicaid reimbursement payments are below a hospital’s cost of service.
Added to that is the state of the nation’s economy and the rise in unemployment since 2009. Higher unemployment has resulted in an increase in people without medical insurance. Uncompensated care – which hospitals provide to uninsured patients without payment – has risen dramatically. According to HARI data, uncompensated care in the state has risen from a total of $129 million in 2009, to $150 million in 2010 and $160 million in 2011.
Rhode Island hospitals have also seen an increase in bad debt, money it is owed but unable to collect. Bad debt has risen from $152 million in 2009, to $163 million in 2010 and $166 million in 2011, HARI says.
Quinlan said that the economy and related stock market fall caused many hospitals to lose money on their investments, or nonoperating income. “That hindered hospitals from overcoming sluggish operating performance. The recent rebound in the market has helped but if a hospital does not have a significant endowment, it’s insignificant,” he said.
Despite experiencing their own financial difficulties, Quinlan believes some Rhode Island hospitals are still evaluating the possibility of merging with the struggling Westerly facility.
“Some have opted to form systems while others remain independent. All hospitals continually assess how they go forward,” he said.
Representatives from The Westerly Hospital did not immediately return calls seeking comment. •

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