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Steward gets more purchase leverage

March 9, 2012

PROVIDENCE – Steward Health Care System walked out of Superior Court Friday with a revamped agreement to buy Landmark Medical Center that puts more pressure than ever on state regulators, lawmakers, and private business interests to get the deal done quickly, and on Steward’s terms.
The agreement, which would have otherwise lapsed Friday, now expires on May 2, and marks the eighth time the Steward’s purchase offer has been extended by Judge Michael Silverstein. But the new pact gives Steward the sole discretion to walk away from the deal if certain conditions are not met by then, including:
— The abolition of the legislative ban requiring for profit hospital networks to wait two years before purchasing a second hospital after buying the first.
— An accord between Thundermist Health Center and Steward regarding the scope of contractual services the clinic intends to seek from the hospital.
— The acquisition of Landmark’s cancer center, currently owned by a third party, on terms wholly acceptable to Steward.
Silverstein also gave Steward a blank check to cut programs and personnel after taking over the hospital instead of waiting up to two years to do so, as required by the original purchase agreement for Landmark, dating to last May.
The judge acted over a litany of objections from state regulators, including representatives of Attorney General Peter Kilmartin and the Executive Office of Health and Human Services. One of their principal arguments was that Steward wants to be able to shift the blame for abandoning the deal because it doesn’t want to keep pumping money into Landmark for as long as it will take to complete regulatory review under the Hospital Conversions Act.
But representatives of Steward said the economics of health care in Woonsocket had changed since the original deal was approved, and they remain committed to following through on terms that offer the best hope of keeping the community hospital financially sound, with quality programs, into the foreseeable future.
Jonathan Savage, the special master in charge of running the hospital, told the court that the deal had reached a critical juncture because, even after a $7 million infusion of operating cash from Steward, Landmark could eat through what’s left ? about $1.3 million – in about a month.
“What we have working against us is time,” said Savage. “We are running out of rabbits to pull out of a hat. If we fail and the hospital fails because of it, and it is forced to close, it will be everyone’s failure, and a failure of the system.”
Despite insinuations that Steward is looking for scapegoats in anticipation of backing out of the Landmark deal, Bob Guyon, executive vice president of Steward and a resident of Cumberland, reassured the court that it remains committed to following through.
“There’s seven million reasons why we want to close this transaction,” said Guyon. “We’ve invested a lot of money here. I care deeply about this hospital.”
But Guyon, too, said the deal was at a pivotal crossroads because Landmark could run out of money within 30 to 45 days. He said, “We are asking those whose hands hold the keys to the success of Landmark to execute their duties expeditiously.”
The chief purpose of the changes to the layoff and program language in the original agreement, Steward says, stem from the loss of revenues recently from OB/GYN patients and psychiatric care. The former was the result of Thundermist’s decision to send expectant mothers to Women & Infants for prenatal care and deliveries. Also, the state secured a new provider for psychiatric care that translates into far higher costs for Landmark without a reduction in patients, according to Landmark President Richard Charest.
After the hearing, Chris Murphy, spokesman for Steward, said if Thundermist and the state did an about-face on those decisions, Steward would ask the court to strike the changes pertaining to layoffs and program cuts from the agreement. Regarding obstetrics, Murphy said the key concern isn’t money, but patient safety, because the quality of care can erode if the volume of patients falls too low.
But Asst. Atty. Gen. Jody Bourque told the court that Steward should have anticipated the Thundermist issue because it had arisen in the past. She implored the court to force Steward to stick by its original agreements on hiring and programs. If the deal was behind schedule, she said, the fault was no one’s but Steward’s, because it had caused a four-month delay in initiating the HCA review by failing to submit a complete application on time.
Bourque said the deadline on the asset purchase agreement provides barely enough time for the regulators to incorporate written comments from the public, which can still be submitted until April 20. She said a mandatory hearing to gather public feedback in Woonsocket is also scheduled for April 9.
She told the judge she doubts even he would have deemed Steward a qualified bidder last May if it had made an offer with so many potential dealbreakers in it. “The goal was to get an agreement without contingencies,” she said. “You were promised at that time an agreement without contingencies. Now we’ve got an agreement where there’s going to be conditions.”
“To put them in now allows Steward to blame someone else for the failure of the deal,” she said.
Mark Russo, a lawyer for Radiation Therapy Services, echoed the protest. RTS owns a 62 percent controlling interest in Landmark’s cancer center, and the agreement now means that Steward can walk away from the deal if it can't reach terms for a buyout before the agreement lapses. It was an unfair burden to heap on RTS, said Russo, particularly since Steward knew of the third-party asset before it made an offer for Landmark.
“We’re being asked to pull our assets into a proceeding where they don’t belong,” setting up his clients for unwarranted blame if the deal falters, he said. “I don’t want to be put in this position and I’m not alone.”
A lawyer for Thundermist expressed a willingness to work with Steward, but said the nonprofit clinic feared Steward was setting it up as a “scapegoat” for the collapse of the Landmark deal.
For the first time, the city of Woonsocket made its case as a stakeholder in the fate of Landmark, with Economic Development Director Matt Wojcik telling the judge the city supports the new agreement. Wojcik said the city, which is on the verge of bankruptcy, would see “a massive boon” in the sale because the hospital would be converted to a for-profit, taxable asset. “Today,” Wojcik said, “We get zero from the hospital.”
Ultimately, Silverstein acknowledged that it was not within his power to grant some of the provisions Steward was seeking. Lifting the two-year waiting period is in the legislature’s hands, and the HCA provides for a review that could take longer than the deadline on the new agreement.
Still, Silverstein gave Steward everything it was seeking and told the parties to work together to get the deal done as quickly as possible to save a vital healthcare provider and economic engine for northern Rhode Island.
“I’m not asking that anyone break any rules,” said Silverstein. “To the extent that this can be expedited, let it be expedited. If the hospital disappears from the face of the earth, there is a massive hole in the northern part of the state of Rhode Island.”

Comments

Landmark

March 11, 2012 by kantra (not verified), 2 years 29 weeks ago
Comment: 956

It's such a shame that Steward Health Care is holding the jobs of Landmark medical staff at bay. They are also holding the local government at bay, it's do what we want or bye bye, they know Landmark will close if they do not take over. I guess if you go to them they will also say pay up front of go outside to die. Steward is such a great caring company NOT

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