A St. Louis-based company that specializes in rehabilitative care is seeking to buy a majority stake in the Rehabilitation Hospital of Rhode Island, in North Smithfield, which is currently part of Landmark Health Systems Inc., and operate it at half its licensed capacity.
RehabCare Group Inc. and Landmark filed an application with the R.I. Department of Health on Aug. 31 for approval of their proposed deal, which would preserve a minority stake in the hospital for Landmark.
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The two parties have created a new entity, RHRI LLC, in which the for-profit RehabCare is to own an 80-percent stake, with the remainder owned by th nonprofit Landmark, according to the application.
The rehab hospital, which is licensed for 82 beds but has been operating at half its capacity due to changes in Medicare reimbursement rates, would operate with only 41 beds, and the remaining licensed beds would be assigned to a new Rhode Island Specialty Hospital, for which a separate application is being filed, the document says.
In a news release, RehabCare said it would contract with Landmark for clinical, ancillary and support services, and hospital staff would be employed by the joint venture.
The application values the rehab hospital’s operations at $2.2 million and says financing for RehabCare’s share of the deal – valued at $1.8 million – would be provided through the company’s existing line of credit, which is currently $175 million and expandable to $225 million, with $102.5 million currently outstanding.
The hospital currently has a staff of 105.3 full-time-equivalent employees earning $7.9 million, including fringe benefits, the application says. In the first full operating year under new ownership, it is projected to have 108.3 FTEs.
Last year, the hospital generated $13.1 million in revenue and had a net loss of $1.2 million, the document shows. In the current year, it’s expected to make a $108,000 profit, and under the new ownership, a profit of $499,000 is projected – versus a $46,500 loss if the deal isn’t approved.
The application also shows that if the deal were to be approved, the patient mix at the hospital would be expected to shift. While in the current year, Medicare is expected to account for 38 percent of patient revenue, that would rise to 59 percent, but Blue Cross’ share of patient revenue would drop from 29 percent to 16 percent, and other HMOs’ share would drop from 16 to 9 percent.
RehabCare is a publicly traded company that provides physical rehabilitation services in conjunction with nearly 1,300 hospitals and skilled nursing facilities in 43 states, the District of Columbia and Puerto Rico, and owns and/or operates 10 freestanding facilities.
The venture would be the company’s first in Rhode Island, according to RehabCare President and CEO John H. Short; for Rhode Island, it would be the first time a for-profit entity owns a local hospital – though some of the state’s nonprofit hospitals do already have limited for-profit operations.
Landmark President Richard Charest referred all questions about the deal to RehabCare, but the latter’s news release about the proposed deal did include a statement from him.
“The considerable experience and know-how that RehabCare will bring as a reputable leader in rehabilitation services management reinforces Landmark’s commitment to providing the highest standards of care,” Charest was quoted as saying.
Landmark’s primary activity is the operation of a 214-bed acute-care hospital, plus an extensive network of specialty sites. The company has been struggling financially, and not long ago it went through a public battle with Blue Cross & Blue Shield of Rhode Island to try to get higher reimbursements for its services, aiming to get out of the red.
Most recently, Lifespan President and CEO George Vecchione said that his company, which is seeking to merge with Care New England, was also talking with Landmark about the possibility of making some kind of deal, presuming state officials would approve.
In the news release, Short said his company was “excited by the prospect of working with Landmark to build a comprehensive continuum of post-acute care for the residents of northern Rhode Island and southeast Massachusetts.”
The deal is subject to approval by R.I. Attorney General Patrick C. Lynch and Dr. David R. Gifford, the state health director.
Asked for comment, Gifford said Wednesday that he had not yet been able to review the entire application, though before it arrived, he “had heard rumors that it was coming.”
His next step will be to meet with Lynch and determine whether all the necessary information has been supplied, Gifford said, “and then we start the review process.”
State law and regulations set a timeline to ensure the review is completed in a timely manner, but only if all the proper documents are in place. Ultimately, Gifford said, he and Lynch will take “as long as it takes to do [the review] in a thoughtful and careful way.” •
