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UPDATED: Dept. of Health approves Landmark sale

May 23, 2012

WOONSOCKET – Landmark Medical Center is one giant step closer to becoming a for-profit hospital owned by Steward Health Care this week after the health department approved the sale, with numerous conditions.
Health Director Michael Fine announced Tuesday that the state Department of Health had approved Steward’s application to buy the struggling hospital under the complex Hospital Conversions Act.
HCA review is a two-tier process that also requires Attorney General Peter Kilmartin’s approval, which hasn’t come yet. But Amy Kempe, a spokeswoman for Kilmartin, indicated Wednesday that a decision could be imminent.
“I think we found that Steward is an able acquirer of the hospital,” Fine told The Call. He stopped short of calling the decision an endorsement, however, saying, “It’s neither hearty nor not-hearty. By criteria evaluation I think it’s more an evaluation of an application than an applicant.”
Steward met the regulatory requirements for continuing to provide adequate health care to underserved and needy populations, Fine said. “The rest, I think is up to Steward. I think the important thing is that Woonsocket continues having the safety net protected for hospital services. It’s the most vulnerable people we worry about.”
DOH’s approval marks the first time the HCA has authorized the conversion of a non-profit hospital to a for-profit one. Based in Boston, Steward has been in existence less than two years and already owns 11 hospitals in Massachusetts. The company is controlled by the New York private equity group, Cerberus Capital Management, the same company that came to the aid of Chrysler Corporation when the automaker was on the financial shoals several years ago.
Saying it was on the brink of fiscal collapse, Landmark filed for receivership in Superior Court nearly four years ago, a move that launched the hospital on an often rocky path toward finding a sound buyer.
In its decision Tuesday, Fine also signed off on the Health Services Council’s May 8 recommendation that Steward’s permit for change of effective control of Landmark be approved.
Steward’s bid for the assets of Landmark Health Systems include the Cass Avenue acute care hospital as well as its North Smithfield affiliate, the Rehabilitation Hospital of Rhode Island. If the sale is consummated, Landmark’s name would be changed to the Blackstone Medical Center, while the North Smithfield facility would become the Blackstone Rehabilitation Hospital.
“In evaluating these applications,” Fine said DOH “was charged with considering the totality of the evidence, as well as the needs of the people of Woonsocket.”
The staff at DOH “worked hard to thoroughly review these applications quickly and efficiently to keep this process moving along,” he said. “After extensive review of the evidence, the R.I. Department of Health determined that Steward adequately met the criteria for approval of its applications.”
The sale of the hospital is also a critical component of city government’s long-range solvency plans. In recent days, amid talk of municipal bankrupty and the passage of a hefty 13 percent supplemental tax bill to keep schools open for the rest of the year, political leaders have repeatedly cited the sale as key piece of their plan to restore economic stability to the cash-strapped city.
As a non-profit hospital, Landmark has been exempt from real estate taxes, adding nothing to the city’s tax base. As a for profit, the hospital’s Cass Avenue real estate, as well as its medical equipment and other technology, would all become subject to property and tangible real estate taxes.
Like other large businesses with sizeable workforces, Steward’s liability would likely be negotiable and memorialized in the form of an agreement known as a Payment in Lieu of Taxes, or PILOT, with the onus phased in over a number of years. Ultimately, officials say they are hoping the hospital generates some $3 million in new annual property taxes when the entire liability is phased in.
In anticipation of the conversion, city officials hired a consulting firm to figure out, as a starting point for negotiations, what the value of Landmark’s real estate is in the current market. The figure is $27.3 million, according to the Assessors Online Database
But it’s probably too soon for anyone to start celebrating the sale, which would also mean the preservation of some 1,200 jobs for nurses and other healthcare professionals.
Even if the attorney general provides a thumbs-up followup to DOH in the still-pending leg of HCA review, there’s no guarantee that Steward will accept all the conditions it is facing. Chris Murphy, a spokesman for Steward, has been quoted as saying the company is studying the contingencies.
DOH inserted a list of 19 conditions into the terms of its approval, including:
• Steward and Blackstone Medical Center shall collaborate and coordinate care with primary care and maternity care providers in its service area.
• Steward and Blackstone Medical Center shall participate in currentcare, the new health information exchange created as part of national health care reform, and shall strive to enroll all its patients in the program.
• Steward and Blackstone shall not use ownership interests as incentives for employees or physicians to refer patients to the hospital.
• Financial, hospital utilization and demographic data must be furnished to DOH upon request.
• Steward must honor its pledge to commit $4.5 million to physician recruitment in its first five years after closing on the sale of the hospital.
• Stward must expend $30 million, plus an amount equal to 2.5 percent of annual net patient revenue, on capital expenditures during the first five years after closing.
In addition to the conditions set by DOH, Steward has obtained court approval for a number of other contingencies which, if unmet, would allow the company to walk away from the deal. One possible hitch is the revision of the Hospital Conversion Act.
Legislation to amend the Hospital Conversions Act, introduced at the request of Steward, is now before the General Assembly. Steward’s key goal is to eliminate the current provisions of the law requiring the company to wait at least three years before purchasing another financially shaky hospital if the Landmark sale goes through.

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