Care New England Health System’s proposed acquisition by Massachusetts health care giant Partners HealthCare ended abruptly in June when Partners pulled its application, after CNE was drawn into talks with Lifespan Corp. and Brown University by Gov. Gina M. Raimondo.
Six weeks later, CNE withdrew from discussions with Lifespan and Brown.
Rhode Island’s second-largest health care system now finds itself facing industrywide economic challenges without a partner, but CEO and President Dr. James E. Fanale told Providence Business News on July 23 that, despite acute “deal fatigue,” the network doesn’t plan on going so
lo forever.
“Do I think Care New England could stand alone indefinitely into the future – I don’t,” he said. “There’s going to be more consolidation in the market.”
See related story: Expanded ambulatory care eyed
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INDUSTRY NECESSITY: Despite saying there’s no appetite for Care New England to engage in any acquisition deals over the next year or two, CEO and President Dr. James E. Fanale believes consolidation is a necessity in the health care industry because it expands access to capital.
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You spent the better part of two years preparing for an acquisition by Partners. Now that negotiations are over, what’s next for CNE? We’re taking a pause, and we’re going to focus on all the things that we need to do. And actually, I think the organization is pretty excited about it. Growth areas are emphasizing quality service and access. So, we have a whole platform upon which to do that. There are some areas over the past two or three years that we’ve sort of held firm on and not done. There’s a bunch of stuff we … put on hold because we thought we’d do it with somebody else, so it’s really areas of growth, expanding our provider network, our programs, looking at things we haven’t paid enough attention to, such as the research infrastructure and really emphasizing all those things.
You spoke several months ago about creating a 10-year plan for investments. Has that changed now that it will no longer include access to Partners’ capital and borrowing power? I think it’s a 10-year plan on a different scale. So, what we’re doing now is re-prioritizing capital. We’re looking on the deferred maintenance side. Which projects should we start to do first? Which are the most pressing? We haven’t renovated the units at [Kent County Memorial Hospital]; there are three med-surge units that need to be renovated. We’re planning on trying to do one of them this year. We have a unit with no bathrooms in the rooms, so that unit we need to renovate first, because it’s not good for patients. Our plan is to do one of those this year. The labor and delivery unit [at Women & Infants Hospital] is a big project. We’ve raised some money for that project, money that is restricted and secured for that project. We had a capital campaign that was ready to go that we put on hold until we could tell people what our future was. So, the planning for the labor and delivery project will commence pretty soon. When will we get to the renovation? I think it’s probably not in 2020; we’ll hopefully start that in 2021, because we have to. It’s 35 years old, that wing. And the rooms are twice as big now. Everything’s different now.
Do you think there’s a chance a new deal with Partners could be reached in the future? I don’t think there’s any appetite to go back out and do a deal, an acquisition over the next year or two. We’re just going to stabilize; I don’t think the climate would be good, and we’ve commented publicly about this disease entity called deal fatigue. Care New England’s been doing a deal for three or four years … so I think we just want to sit back and take a break for at least a year, probably two, and then decide what we’re going to do after that. … We’ll see how things are in a year or two and then decide whether we’ll further engage [Boston-based Brigham Health, a Partners subsidiary], the Rhode Island solution, whatever that would be. We have a pretty strong affiliation with the Brigham already at Kent, we obviously think that’s important, the Warwick region does, we’ll continue to explore opportunities to expand that.
Would the state benefit from a fully integrated, academic health care system, as the governor was pushing for? The vision of having a unified, academic health care center in Rhode Island is a compelling one. Is there enough capital in it? Does it work? What are the intricate details? The devil’s in the details. Do I think the solution that we had with the Brigham deal was enticing? Sure. There was access to new capital coming into Rhode Island that I think could have done great work for us and would have been a significant investment in the state. … So, I think there are multiple ways to get there.
Do you think consolidation is a necessity in the health care sector? I do. I think scale is important. … Our access to capital, although we’ll raise some, is not enough to fix all the stuff we need to fix. It’s just not enough. So how does an organization [in that situation] access $300-$400-$500 million? How does Lifespan fill its long-term needs? I think we’re all going to have challenging times financially. New England health care is pretty stressed. It’s not just Rhode Island; it’s a pretty tight business.
CNE cited antitrust concerns as one reason that talks between it, Lifespan and Brown fell apart. What about those concerns were enough to warrant pulling out of discussions called for by the governor? I don’t think the Federal Trade Commission concerns specifically were a reason to pull out of the talks. I think the arrangement at this time didn’t seem to be right for CNE, but I think that CNE’s review of the situation was that the FTC process would take a long time. When we did the FTC application process for the Brigham deal, that was a 30-60-day process, and they passed on it. They didn’t request what’s called a second review. A second review is a fairly intensive review. Based on the aggregation of the two largest health systems in Rhode Island, I would think that if those two were coming together, the FTC would have some issues and require a longer period of time to review.
Why did Partners withdraw its application to acquire CNE, rather than wait for the outcome of renewed talks with Lifespan and Brown? Was that application ever completed? It was not completed. We were in the process of finishing answers to questions that the [R.I. Department of Health] had before it would be deemed complete. It was never deemed complete. … When we were requested to come in the room and discuss the Rhode Island solution, we had a definitive agreement with Partners, they had to OK us to do that, and they did. In effect, they thought that they did not want to influence the discussion, I think they were taking the high road and said, let us just back out. If the Rhode Island solution goes somewhere, fine, we’d like to consider being some kind of involved down the road, but if it doesn’t, then we can always come back.
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INTERESTED PARTIES: Care New England CEO and President Dr. James E. Fanale says the company is looking to sell to a developer half of the property where the former Memorial Hospital is located in Pawtucket, adding there are some “interesting options and interested parties” that want to use the campus.
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Do you realistically see CNE, Lifespan and Brown resuming conversations about partnerships, collaborations or more-formal deals? If there’s an opportunity that we should all come back together again and have these discussions, I certainly think we’d entertain that. … I agreed with [Raimondo] … that we should quickly decide if the three of us [could] sit down and work on things together. I actually met with the Brown leadership in the last couple of days, and we do want to come together and talk about how we can expand together our research capabilities, the academic mission. So, we proposed that the three parties get together in collaborative discussions. And I think right now we haven’t set those up, everybody’s got to agree to do that, but we think that’s a good idea.
Will it be more difficult now to work with Lifespan, either on the collaborations you now have or developing new ones, given its public opposition to CNE’s deal with Partners? We hope not. That campaign’s over. I think it took me a couple of days in meetings, then I said “OK, I’m now over it.” I don’t think we can [live] in the past. I can tell you that campaign had no effect on our willingness to sit down with Lifespan leadership and collaborate on things. Do they think differently about it? I don’t know. [Editor’s note: CNE declined to comment on an Aug. 1 Boston Globe report citing tensions between Fanale and Lifespan CEO and President Dr. Timothy J. Babineau after Lifespan ended its partnership with CNE’s Integra Community Care Network in July.]
What are the plans for the campus that includes the former Memorial Hospital? The Memorial campus has our ambulatory clinics that are busy, growing, so it’s primary care and specialty clinics, the urgent care type of operation, we’d probably call it express care, and we’re looking to sell half of the property to a developer. Those negotiations and discussions are actively ongoing, for something that would work for Pawtucket, the state and the Memorial campus. We’re moving on that. It would include the hospital building and probably half of the campus. Could the hospital buildings be renovated for another use – we’re working on that now. There are a couple of pretty interesting options and interested parties that would like to use that campus.
Is CNE responsible for any remaining legacy costs from the former hospital? The Memorial campus is still a bit of a problem because it’s costing us $2-$3 million a year just to keep those buildings shuttered. … So, if we’re able to sell that part of the campus, our operating expenses would drop by a couple million [dollars] a year. It’s heating, air conditioning an old building. We’ve got the ambulatory clinics that are fueled by the boiler plant, the boiler plant at the hospital requires 24/7 engineers, it’s not like an HVAC system. So, there are a lot of expenses to use an old hospital and keep it open. … We are hoping that we can end that this year.
Did you get a sense of where the public and your own staff stood on the Partners deal and the talks with Lifespan and Brown? I would say that the public was 3-1 in favor of the Brigham coming into Rhode Island. I would say that our staff … they were 95% committed to [the Brigham] vision. So, if you went to them and said, ‘I’ve got another vision for you,’ it’s not going to be met with as much exuberance. I’m not trying to say they were [opposed to] the Rhode Island solution, but they were so pro the Brigham that they felt it just went away overnight, and it did. So that’s a tough one for them to deal with. What we did promise them when we went into discussions was that we would make sure the arrangement worked for them. I think they were relieved because the unknown was worse than the known. So, if you asked them, the unknown of a [Rhode Island] solution – without knowing what their future was – was something that concerned them. … I think they’re relieved that they know … we’re going to press on and work together and improve our lot.
Did you go out and talk to your staff? When the Rhode Island solution started, we went to seven, eight, nine places. We estimated that 1,500 to 1,700 staff came out. The rooms were packed with hundreds of people. … Almost the same number went out for us to tell them that we had exited the talks. Twenty percent of our staff we met with at those meetings.
Did the end of in-state merger talks save jobs at CNE? How many jobs were in jeopardy? That’s a question that was asked about the Brigham deal, and it’s a question that gets asked about the Rhode Island deal. I can tell you that we didn’t get down into any details about numbers of jobs that would go with either of the transactions. But at CNE our assessment is that the job impact would [have been] much greater with the Rhode Island solution than it would be with the Brigham solution.
Elizabeth Graham is a PBN staff writer. Contact her at Graham@PBN.com.
