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Judge to rule on Landmark next week

April 18, 2011

PROVIDENCE — After the bidders made their last and best offers for Landmark Medical Center in Superior Court, Judge Michael Silverstein said he expects to choose the winner “not later than very early next week.”
Silverstein is expected to make the final announcement in open court.
That's how three days of sales-pitching for the assets of not-for-profit Landmark Health Systems, Inc., including the 214-bed acute care hospital in Woonsocket and the Rehabilitation Hospital of Rhode Island in North Smithfield, played out yesterday.
The contenders include four for-profit hospital groups, three of whom are offering millions to acquire and strengthen both hospitals. They are RegionalCare Hospital Partners and Transition Health Care, both of Franklin , Tenn., who are offering total investments of $69.8 million and $45.7 million, respectively. Prime Healthcare of Ontario, Calif., is offering some $55.5 million, while Health South of Birmingham, Ala., has staked about $10 million for the rehab hospital only – a condition that may end up excluding the company.
Each of the bids varies in terms of how much of the dollar figure is for long-term capital improvements and other costs faced by the struggling hospital, which has been run by a court-appointed receiver, Jonathan Savage, since June 2008.
Moreover, the contenders have been allowed to modify their bids since the hearing began last Thursday. Silverstein asked for sealed bids with final enhancements by noon yesterday. An hour later he unsealed the bids, read a few details aloud, then offered lawyers for each of parties to make a final pitch before closing this phase of the selection process.
The latest versions were so fresh that even lawyers for Savage said it would take more time to understand the details, and various parties might differ, ultimately, on how they measure up.
“I think it depends on who you ask,” said Preston Halperin. “Clearly there are changes.”
Halperin said later that some of the nuances deal with the cash the successful bidder will make available up front to settle Landmark's debts, including some $2 million it borrowed from a former suitor, Caritas Christi, plus another $1.6 million from private lenders. Landmark borrowed the money last year as part of a $5 million settlement with creditors backing Landmark's debt.
Still, Halperin said the most significant last-minute bid tweak might have come from Prime Healthcare. The company offered $6.75 million in cash at the closing, $2 million more, on top of paying off all of Landmark's debts. Other bidders offer to supply the hospital with an amount equal to the “net working capital” of the hospital – assets minus liabilities – which was $7.5 million nearly a year ago, but the hospital would have to pay its own debts from whatever a current audit reveals the figure to be.
“The public's interest will be best served by selecting Prime Healthcare to turn around Landmark,” lawyer Richard Mittleman asserted in his closing statement for the company.
Silverstein made it clear at the outset of the hearing that the financial investment in the hospital will be only one factor he takes into consideration. He said he would have to decide how the buyer's plans protect the public's interest and access to quality health care in northern Rhode Island.
For RegionalCare, the company's adversarial relationship with the United Nurses and Allied Professionals appears to be an issue. RegionalCare is the only one of the three bidders vying for both hospitals that has failed to reach a collective bargaining agreement with UNAP, which has embarked an an aggressive campaign to paint the company as unfair to labor.
On Thursday, Marty Rash, RegionalCare's CEO, testified that he didn't think the hospital could be successful in providing quality care without the support of employees. As RegionalCare lawyer George Bishop made his final statement, he seemed optimistic about bridging the chasm with UNAP, but Silverstein interrupted him, asking Bishop whether he'd received some new indication that the union is willing to return to the bargaining table.
“I have not.” Bishop said. However, he added, if RegionalCare is the successful bidder, “I would hope the union would see it in their best interest to engage in those discussions.”
On the contrary, UNAP issued another press release yesterday saying “over 400” union members had signed an open letter to RegionalCare executives urging them to withdraw their bid for the hospitals.
“Despite all your money, it is clear to us that you have failed to (make) the most critical investment investment of all, (in) the skilled workforce at our hospitals, and because of that, you are destined to fail,” the letter reads, in part.
In his presentation, Bishop emphasized that RegionalCare had obtained an agreement in principal on a reimbursement contract with Blue Cross/Blue Shield of Rhode Island, a contentious issue the current management of Landmark has blamed for causing the hospital's financial problems. Landmark recently filed suit in Superior Court over allegedly unfair insurance reimbursements, saying Blue Cross has all but starved Landmark to the point of insolvency.
UNAP has approved new collective bargaining agreements with both Transition and Prime Healthcare, both of which the union supports as potential buyers. Of the three, RegionalCare says it would release up to 125 workers, Prime Health 225 and Transition – none.
All of the bidders strove to put their best foot forward – whatever it was – during closing statements. William Fish, a lawyer for Transition, played up his client's pledge not just keep all the employees, but try to boost the employee-to-patient ratio. Even if just 100 health care positions were eliminated, the current ratio would fall below 3.3 to 1, lower than some of the most poorly-staffed, rural hospitals, said Fish.
“Our view of this is somewhat simplistic,” he said. “Something has to give. As staffing goes down, quality or services have to suffer.”
HealthSouth, meanwhile, made an impassioned plea for the judge not to shut the door on it completely merely because it was vying only for the rehabilitation hospital. Patricia Rocha, a lawyer for the company, said her company has more experience than the other bidders in providing rehabilitative care.
If the hospitals are sold to another bidder, HealthSouth would remain interested in repurchasing, or negotiating an agreement to manage the rehab hospital, from the buyer, said Rocha. She urged the judge to enter a final order that was relaxed enough to allow the final bidder to pursue those interests with HealthSouth.

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