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Steward seeks new contingencies

March 7, 2012

WOONSOCKET — The company that wants to buy Landmark Medical Center is seeking to add new contingencies to the original terms of the sale to allow for the possibility that maternity and psychiatric wards could be eliminated, along with the personnel needed to run them.
Steward Health Care System’s original asset purchase agreement, or APA, is scheduled to expire on Friday. But the parties are due back in Superior Court that morning on a motion to extend the agreement and incorporate the new terms with the potential, at least, to become dealbreakers for Steward.
Chris Murphy, a spokesman for Steward, says a key issue is Thundermist Health Center’s recent decision to use Women & Infants Hospital in Providence for child deliveries and prenatal care instead of Landmark. Also, he said, the state recently inked a new contract for psychiatric services with a provider that Landmark is not fully under contract to deal with.
“We have to address whether a loss of patient volume will affect our ability to maintain quality and safety in those services,” said Murphy. “If we cannot maintain safety and quality because of a loss of patient volume we need to flexibility to close those services.”
The original asset purchase agreement would have prevented Steward from cutting programs for two years after the deal closes. The proposal is currently under review by state regulators, including Attorney General Peter Kilmartin and Health Director David Fine, as required by the state law known as the Hospital Conversions Act.
Papers on file in Superior Court indicate that Steward could walk away from the proposed sale if certain new contingencies are not included in the extension of the APA, but Murphy insisted, “We want Landmark to be part of the Steward system.”
Murphy said it is unlikely Steward would withdraw its offer for Landmark at this point if Steward fails to secure any of those sought-after contingencies, though he could not rule it out.
In addition to new language on programs and staff, Steward, a for-profit entity, wants the new APA to include a waiver on the two-year waiting period it would normally face before being allowed to purchase another hospital in Rhode Island. A bill designed to accommodate Steward is currently pending before the General Assembly, but there’s no guarantee lawmakers will pass it.
“In Rhode Island we’ve learned a lot of community hospitals are in financial distress,” said Murphy. “That makes it possible for outside investment to come in and grow these community hospitals. But all the conditions in here are subject to our discretion and if closing day comes and not everything is in place, it doesn’t mean the deal is over. It’s in our discretion to waive these requirements anyway.”
Another proposed contingency involves Landmark’s cancer center, in which a third party, Radiation Therapy Services, holds a controlling interest. Steward wants an agreement to acquire to the facility on terms over which it has sole discretion.
With regard to Thundermist, Murphy said Steward is not seeking to change the nonprofit clinic’s mind about where it sends maternity patients. But it would like to meet with the nonprofit clinic to determine whether it plans on realigning other services with health care providers other than Landmark, including primary care, diagnostics and laboratory work, so it can adjust accordingly.
Thundermist Director Chuck Jones said he’s open to talks with Steward, but he can’t predict where they’ll lead.
“Thundermist develops partnerships based on the partners’ ability to provide the best possible care for our patients and we’ll continue to do so,” he said. “Right now I’m pleased with the quality of service provided by Women & Infants and I have no plans to change that in the immediate future.”
Though the proposed amendments would appear to give Steward a free hand to make layoffs and program cuts, the union that represents about half Landmark’s roughly 1,200-member workforce does not seem particularly concerned. Steward has already reached contractual agreements with the United Nurses and Allied Professionals that tie layoffs to the workload, and those pacts can only be altered through collective bargaining, said Chris Callaci, UNAP’s general counsel.
“The employer does not have unlimited power to lay people off,” said Callaci. “The collective bargaining agreement controls the issue of layoffs for us, not the asset purchase agreement.”
Callaci said the language regarding layoffs that Steward seeks to delete from the original purchase agreement covers a one-year period which has almost expired already. “I don’t think it’s particularly significant in relation to bargaining unit employees,” he said. “There is no blank check.”
The court-appointed special master in charge of the Landmark, Pawtucket lawyer Jonathan Savage, is recommending that Superior Court Judge Michael Silverstein approve amendments to the original agreement.
In papers on file with the court, Savage called the execution of the amendments “critical to the continued viability” of Landmark and its sister facility, the Rehabilitation Hospital of Rhode Island, which is also part of the deal.
Landmark has been in receivership since June 26, 2008, saying it was on the verge of bankruptcy. The special master, a kind of bankruptcy trustee, has said repeatedly that Landmark’s only hope for survival is to merge with a fiscally sound health care entity.
Since Silverstein approved Steward as the only qualified buyer last May, Landmark’s operations have been propped up with a $2 million loan from Steward, plus a $5 million line of credit.
In a preliminary filing under the HCA, Steward says it plans to pump some $30 million into Landmark in the first five years after the closing for capital improvements, physician recruitment and new technology. It also said it envision laying off no more than 90 workers in a variety of departments, though that forecast now appears questionable.
Based in Boston, Steward is a new, for-profit hospital chain created from the holdings of the former, nonprofit Caritas Christi Health Care of Massachusetts. Backed by Cerberus Capital Management of New York, the large private equity firm that helped prop up Chrysler Corp. several years ago, Steward purchased six hospitals in the Caritas network that were previously controlled by the Roman Catholic Archdiocese of Boston, and it has since gone on to acquire four more hospitals in Massachusetts.

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