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Landmark surpasses final hurdle to sale

May 26, 2012

WOONSOCKET — Three days after the Rhode Island Department of Health gave its blessing, state Attorney General Peter F. Kilmartin Friday announced he has approved - with conditions - the proposed sale of financially-troubled Landmark Medical Center and Rehabilitation Hospital of Rhode Island to Steward Health Care System, a for-profit Massachusetts hospital group.
Kilmartin's decision, which finally paves the way for the sale, came just days after State Health Director Michael Fine announced his decision to approve the deal, under which Landmark would become a for-profit hospital.
Woonsocket Mayor Leo T. Fontaine and many in the community support the deal, saying it would preserve critical medical services and jobs. Landmark has been under court supervision since 2008. A state judge approved the sale last year. The deal would include the hospital's North Smithfield affiliate, the Rehabilitation Hospital of Rhode Island. The two facilities employ an estimated 1,100 healthcare workers in the area.
“I am pleased to announce the approval of, with reasonable conditions, the sale of Landmark to Steward," Kilmartin said in a statement issued early Friday afternoon. "For nearly four years, the fate of Landmark has been in question, in terms of access to healthcare for Northern Rhode Island residents, as provider of good-paying jobs, and as a generator of economic activity. Today’s announcement, along with the recent approval by the Department of Health, allows the two entities to move forward with the proposed sale, and give greater certainty that access to quality healthcare services to area residents will continue.”
Kilmartin's decision includes 16 conditions. Among them is a demand that the closing on the sale take place 60 days from the date of the decision and that the board of directors of Blackstone Medical Center, Inc. and Blackstone Rehabilitation Hospital, Inc. consider no less than seven members, at least three of which are to be independent of and not employed by or affiliated with Steward Health Care System or its affiliates.
Some of the other conditions include:
* That a binding agreement acceptable to the Department of the Attorney General with the Rhode Island Foundation for other appropriate entity for disbursement of all chaitable assets be provided.
* That a petition be filed and granted prior to closing allowing all charitable assets to be transfered to the Rhode Island Foundation or other appropraite entity for disbursement of all charitable assets.
In the list of 19 conditions he imposed in his decision Tueday, Fine demanded that Steward not use ownership interests as incentives for employees or physicians to refer patients to the hospital, and that it spend $30 million on capital expenditures and $4.5 million on physician recruitment in the first five years.
In his decision, Kilmartin addressed the issue of Steward's ability to finance the transaction, saying that according to Steward's balance sheet for the fiscal period ending March 31, the company had $107.1 million in cash and cash equivalents and $402.6 million in current assets. Steward's total assets as of March 31 were $1,127.9 million. Steward’s total liabilities were $1,025.9 million, which includes $361.0 million in current liabilities and $664.9 million in non-current liabilities. Steward's shareholder equity (net assets) was $102.0 million as of March 31.
According to Kilmartin's decision, Steward will pay a total purchase price of $40.1 million, plus the value of the networking capital as of the closing date for the aquisition of Landmark. Steward has also stated that it will spend $4.5 million in the first five years for the purpose of physician recruitment.
In affadavits reviewed by the department, Kilmartin said Steward's current maximum borrowing ability under the existing terms of its assets-based line is $200 million. Also, the orgainization is putting $90 million toward preexisting pension liabilities over the next three years and is expected to reach a settlement related to a preexisting Stark Law violation that will range between $1 million and $35 million.
"The organization appears to have the capacity to finance the transaction, but its capacity to meet future capital commitments could be compromised if the organization enters into other transactions that, in total, exceed their available financial resources and access to capital, or if their financial peformance or position does not materially improve," Kilmartin wrote.
If the deal is accepted by Steward, a hospital chain that owns 11 facilities in Massachusetts, it would be the very first sale of a not-for-profit hospital to a for-profit Massachusetts hospital group under the Rhode Island Hospital Conversions Act, the state law that lays out the regulatory process governing the sale of a non-profit healthcare facility to a for-profit entity.
Steward spokesman Christopher Murphy had little to say Friday about Kilmartin's decision, saying his company will be examining the conditions before it decides whether to accept the terms.
"The decision was just handed down and we are in the process of reviewing all of the conditions," Murphy said.
Landmark Medical Center officials yesterday lauded both Fine's and Kilmartin's decisions to approve Steward's application.
“The Department of Health and Attorney General’s approval was the final regulatory decision we were awaiting to ensure these hospitals continue to operate,” said Rick Charest, president of Landmark Medical Center. “Today marks the successful ending, from a regulatory standpoint, of a very long and complex process. This is obviously great news for the thousands of local residents who rely on Landmark and RHRI, and for our 1,200 employees."
He continued: “We are grateful for the hard work and due diligence of Dr. Michael Fine... and Attorney General Peter Kilmartin, and their staffs, who thoughtfully and carefully reviewed this application.”
U.S. Congressman David Cicilline (D-RI), who earlier this year rallied support for Landmark Medical Center in front of the Rhode Island Department of Health and spoke publicly on its behalf at a hearing in Woonsocket, said he was pleased with Kilmartin's decision.
"For years, Landmark Medical Center has been a treasured institution for both the dedicated health professionals who work there and the Northern Rhode Island families who depend on it for life-saving care," he said. "Over the past year, I have spoken with stakeholders and elected officials across our state to discuss what we could do to keep Landmark from closing its doors."
"I am pleased that Attorney General Kilmartin took action to approve this sale so that Landmark will continue to serve as a valued community asset," Cicilline added. "I look forward to working with Landmark's new administration to ensure that it continues to deliver affordable, quality health care and well-paying jobs for hardworking Rhode Islanders."
Kilmartin Friday recognized Jodi Bourque, assistant attorney general and health care advocate, and the cooperative partnership with the Department of Health, in concluding the review and approval process nearly two months in advance of the statutory timeline.
“Jodi and the Department of Health dedicated the time and resources to a rigorous and diligent review that ensured both parties adhered to the letter and spirit of the HCA statute,” Kilmartin said. "“With the rapidly-changing and highly competitive healthcare marketplace, we will continue to see increased pressure on community hospitals. It is critically important to the long-term success of those hospitals and the communities they serve that an unbiased, strict and thorough review be in place to allow regulators to protect the interests of the community, the employees and the state.”

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