By JOSEPH FITZGERALD

NORTH SMITHFIELD — A transaction to convert ownership of the Landmark Medical Center-owned Rehabilitation Hospital of Rhode Island on Eddie Dowling Highway to a Missouri-based company that provides physical rehabilitation program management services has collapsed after the company withdrew from the deal on Thursday.

Back in March, the Department of Health and Attorney General’s Office received an application for a sale of the ownership of the hospital from RehabCare Hospital Holdings and Landmark Medical Center doing business as Northern Rhode Island Rehab Management Associations (NRIRMA). It was the first hospital conversion application to be filed with the state and basically entailed an out-of-state for-profit entity — RehabCare - buying an in-state hospital.
Rehabilitation Hospital of Rhode Island, an 82-bed hospital which provides acute inpatient and outpatient rehabilitation services, is housed in Landmark’s Fogarty Unit at 116 Eddie Dowling Highway. The joint venture between Landmark and RehabCare would have paved the way for RehabCare to move the 82-bed rehabilitation unit from North Smithfield to a new building it would have built on land leased from Landmark on the medical center’s 16-acre Cass Avenue property in Woonsocket.
Under the agreement, RehabCare would have owned 80 percent of the joint venture and was prepared to pay $1.8 million for that share.
But in a brief letter sent to the Department of Health and the Department of the Attorney General on Thursday, RehabCare President John H. Short said the company decided to withdraw from the deal because of issues raised by the United Nurses & Allied Professionals, the union that represents RHRI’s 60 nurses, therapists and other unionized employees.
“Obviously, today we are disappointed that RehabCare made the decision to withdraw its application,” said Richard Charest, president of the Rehabilitation Hospital of Rhode Island. “We have worked closely with RehabCare to comply with all requests from the Department of Attorney General and the Department of Health to keep this process moving forward. I want to thank both Dr. Gifford and Attorney General Lynch and their staffs for the time and effort they have dedicated to this process.”
“The Rehabilitation Hospital of Rhode Island will continue to offer high quality acute rehabilitation services to patients from Rhode Island and Southeastern Massachusetts,” he said. “We are the only free standing acute care rehabilitation hospital in Rhode Island and we enjoy a reputation for outstanding clinical outcomes.”
Said Charest, “I have informed the dedicated employees of the rehab hospital that we will continue offering the highest quality rehabilitation services and it will be business as usual at the hospital. Patients will not encounter any interruption or discontinuation of services.”
RehabCare’s decision to pull out of the transaction came a day after the United Nurses & Allied Professionals voted Wednesday to strike over issues of health care. The union also filed an unfair labor practice charge as part of a labor dispute over the impending sale.
The union charged RehabCare with refusing to bargain in good faith and with insisting that employees accept a substantially “inferior” health insurance plan that is provided to RehabCare employees in other parts of the country, according to Jan Peso, union president and registered nurse. RehabCare, in turn, threatened to withdraw its bid to purchase RHRI if the union did not agree to its proposed cuts in health insurance and other benefits, she said.
Union officials said RehabCare had also indicated that it would withdraw its bid if the state did not approve the sale by Dec. 31.
On Wednesday morning, the union membership voted to authorize its negotiating committee to issue a strike motion if they were unable to resolve the dispute.
“RehabCare was insisting on benefit cuts that would have cost our members hundreds, and in some cases, thousands of dollars a year, which would have caused some employees to seek employment elsewhere,” Peso said. “The heavy-handed tactics of RehabCare make clear that this was not the type of company that should be approved to run a hospital in Rhode Island.”
Landmark approached RehabCare last year and an agreement for the transaction was struck in August 2007. RehabCare Group is a leading provider of contract therapy and program management services for hospital inpatient rehabilitation, skilled nursing units and outpatient therapy programs in conjunction with more than 890 hospitals and skilled nursing facilities in 37 states, the District of Columbia and Puerto Rico.
Had the deal gone through, it would pave the way for a newly-created 41-bed Rehabilitation Hospital Center at the Eddie Dowling facility and operate as a newly-created for-profit limited-liability company. The company would have owned 20 percent by Landmark Medical Center and 80 percent by RehabCare Hospital Holdings, which would have had management control and contract locally for employees and services
The proposal would have involve 41 beds, 448 annual admissions, capital costs of about $3.8 million dollars and operating costs of about $6 million dollars. Had it been approved by the state, the project would have been implemented in July.
As part of its ownership conversion application, Landmark proposed to contribute certain assets to RehabCare. Concurrent with that transaction, Landmark would have sold 80 percent of its member interest in Rehabilitation Hospital of Rhode Island. RHRI would then have had to seek licensure from the Department of Health to operate the 41-bed rehabilitation hospital center.