The state review process for buying or selling hospitals in Rhode Island is going to get tougher under newly approved legislation.
Meanwhile, one of the state’s two large hospital groups, Care New England Health System, has hinted at a merger or acquisition deal that could be revealed soon.
Will the changes to the Hospital Conversions Act make it more difficult – or even impossible – for Care New England to close a deal? And are those stricter standards a safeguard protecting quality health care or a death sentence for a financially troubled hospital system in need of a partner?
Sen. Majority Leader Michael J. McCaffrey and House Speaker K. Joseph Shekarchi, both Warwick Democrats, said in an emailed statement that the legislation aims to “preserve the best local, healthy delivery system” for any hospital.
Among the changes outlined in the legislation, which has been approved by both chambers but yet to be signed by Gov. Daniel J. McKee, are new requirements around long-term staffing and retirement plan payments for employees in any hospital deal.
The bill also extends the review process to apply to nonprofit buyers – previously it centered on regulating for-profit entities – and eliminates the opportunity for an “expedited” review when the deal would create more than a 20% state market share.
The changes come after the proposed merger between Care New England and Lifespan Corp. was rejected by the R.I. Office of the Attorney General and the Federal Trade Commission in February over worries that combining the state’s largest groups would create a monopoly.
Since then, Dr. James E. Fanale, the outgoing CEO and president of Care New England, has suggested a new deal with a different company was in the works, telling PBN in late May that a decision could be unveiled within 30 days.
As of late June, the company said it did not have any updates.
But the prospect of an out-of-state buyer swooping in and reducing staff and services at Care New England – or any of the other hospitals in the state – was enough to force lawmakers to take action.
That’s no surprise to Robert Hackey, a professor of health policy and management for Providence College.
“Every policy is rooted in some previous bad behavior or problem,” Hackey said. “The real concern now is local control, and preserving that, as well as protecting staff.”
Hackey doesn’t necessarily see the changes made as significant, but rather a minor tweak to what is already the strictest state review for hospital deals in the country.
The road to buying or selling a hospital in Rhode Island is already paved with obstacles, including requisite approvals from the attorney general and the R.I. Department of Health, as well as from federal regulators.
Making already tough requirements a little bit tougher probably isn’t enough to dissuade out-of-state companies from making an offer, Hackey says.
It does, however, ensure that the prospective buyer can’t come in and make sweeping staffing changes. While Lifespan and CNE did not explicitly say they planned to make major job cuts, they also described the merger as a way to lower expenses, which often translates to getting rid of employees, or at least lowering their pay, says James Bailey, an assistant economics professor at Providence College.
Nor can a buyer come in without a plan to pay the pensions for hospital retirees – avoiding the financial and legal problems around an unfunded pension that ensued after the 2018 sale of the parent company of the former St. Joseph’s and Our Lady of Fatima hospitals.
The provisions related to staffing levels and retirement plans are the most significant additions to the existing law, says Patrick Quinn, executive vice president for Service Employees International Union 1199NE, which represents workers in nursing homes and hospitals.
“If you’re going to come in and buy a hospital, you have to have a well-thought-out plan about how to make the economics work,” Quinn said. “Cutting staff and cutting wages in this environment is not going to work.”
While Quinn sees the stricter review process as a victory for hospital workers and the industry as a whole, there could be a downside to making merger deals too onerous, Hackey warns. Particularly for Care New England, which has a history of financial struggles, including a $35 million loss in the first half of fiscal 2022, the inability to find a deep-pocketed partner could force the hospital system to shutter.
“State regulators have to balance these regulations with the need to make sure hospitals stay open,” Hackey said. “If Care New England continues to lose money and hemorrhage cash, that’s not a viable way to stay in business. They’re going to need some way to shore themselves up.”
Both Lifespan and Care New England expressed general support for legislation around hospital merger reviews in emailed statements but declined to comment further.
