The fate of Landmark Medical Center is in limbo, likely for at least several more months, even though a recent court ruling cleared the way for Boston-based Caritas Christi Health Care to acquire the only full-service hospital in northern Rhode Island.
The next obstacle in Landmark’s fight for survival will probably stem from a request late last month for $20 million from the state for capital improvements over the next four years, a request opposed by Rhode Island’s largest health care network, Lifespan.
If the state does not provide the funding, Caritas will not buy the financially troubled hospital, according to Jonathan N. Savage, an attorney whom the court appointed special master to oversee Landmark since the hospital went into receivership two years ago this month.
“It is absolutely crucial,” Savage said, for the state to help Caritas pay for critical capital improvements deferred for many years due to Landmark’s shaky fiscal state.
Under bills pending in the House and Senate, the $20 million would be raised by imposing a .25 percentage-point increase in the tax on health insurance premiums, yielding an estimated $5 million a year from 2011 to 2014. Approval would mark the first time the state has helped bail out an insolvent community hospital.
Because Caritas officials are “so confident of their ability to turn this hospital around,” Savage said, they feel it is only fair for the state to share 50-50 in the cost of “fundamental” physical improvements, while Caritas takes on 100 percent of the responsibility for operating losses. “It will take three to five years to neutralize those losses,” Savage said.
Landmark is expected to post $9.5 million in losses for the 2010 fiscal year, according to Bill Fischer, Landmark spokesman with True North Communications LLC in Providence. For the last several years, Landmark losses have been in the range of $7 million annually.
If the state does not provide $20 million, “Caritas will not buy Landmark,” Savage said.
And, if the sale falls through, it could wind up costing the state far more than $20 million. Savage said fiscal studies show the state could lose as much as $50 million annually if Landmark were to close, due in part to the loss of jobs. Approximately 1,200 people work at Landmark, which has 214 beds and is one of Woonsocket’s largest employers, second only to CVS Caremark Corp.
Savage revealed that he wanted Lifespan to be part of the solution for Landmark, but said he was told “time and again” over several months of discussions that Lifespan would not be able to operate the Woonsocket facility as a full-service hospital due to high overhead costs.
Lifespan could operate a “significantly downsized” version of the hospital, Savage said, but it would be a mere “treat and transport” stop where patients would be briefly treated and then taken to other hospitals for full-service care. The 30-minute transport time from Woonsocket to Providence (and that’s without traffic delays) could mean the difference between life and death for a heart attack patient, Savage suggested.
“It would be a travesty if Lifespan, with its powerful lobby at the General Assembly, were to object to this bill [requesting $20 million], and not necessarily on the record,” Savage said. Landmark is a “much-needed asset” in northern Rhode Island, Savage said. “The whole community has rallied behind this hospital.”
Contacted for a response, spokeswoman Jane Bruno said Lifespan “is not in favor of the state paying for the Caritas transaction at Landmark.”
Now owned by the Catholic Archdiocese of Boston, the Caritas network is about to be sold to a New York-based private equity firm, Cerberus Capital Management, for $830 million. Bruno suggested that the new owner should well be able to finance Landmark’s capital improvements. She declined further comment.
Cerberus will invest $430 million to $450 million immediately to pay off Caritas’ debt, finance renovation projects and provide working capital, while also assuming Caritas’ pension liability, according to a recent report in The Boston Globe. Cerberus would pay another $400 million over the next four years.
Created in 1985 to manage the Catholic hospitals in the Bay State, Caritas serves 55 mostly low-income communities through the six hospitals it operates in Massachusetts: Carney Hospital in Dorchester, Good Samaritan Medical Center in Brockton, Holy Family Hospital in Methuen, Norwood Hospital in Norwood, St. Anne’s Hospital in Fall River and St. Elizabeth’s Medical Center in Brighton. Caritas has 12,000 employees, including 2,305 doctors and 1,800 nurses, with 1,552 beds.
After months of negotiations, Caritas earlier this year was set to start the lengthy process of acquiring Landmark – for an undisclosed sum – when a rival stepped in, the Nashville for-profit company Transition Healthcare and Falcon Investors of New York. They said they could finalize the deal more quickly than Caritas, a proposal that was music to the ears of creditors such as Radian Asset Assurance, which insures $11 million in bonds securing Landmark’s obligations.
However, after several hearings, Superior Court Judge Michael Silverstein ruled May 16 that the Caritas-Landmark sale could proceed, exclusive of other bidders. Silverstein said he was certain Caritas would withdraw if he allowed a last-minute bid. And then, the judge noted, if the Transition/Falcon sale fell through, Landmark would be left without a buyer.
Silverstein’s ruling cleared the way for finalization of a purchase-and-sales agreement for the assets of Landmark and its subsidiary, the Rehabilitation Hospital in North Smithfield, within 60 days.
Meanwhile, officials from Landmark and Caritas were scheduled to sign a management-advisory agreement last week that allows Caritas to manage certain aspects of Landmark’s operations. With the court’s permission, Caritas has been overseeing day-to-day operations.
“Caritas has already started using their expertise to implement changes we need to see up there,” Savage said.
When Caritas and Landmark ink a sales agreement, the next step in the lengthy regulatory process will see the R.I. Department of Health and the office of Attorney General Patrick C. Lynch conduct a full-blown review of the transaction and its likely consequences. Fischer said Lynch and the health department have promised an approval process that will be “as efficient as possible.” •
