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Another sale try fails for Caritas

Archdiocese seeks to shore up hospitals

The Archdiocese of Boston was unable for a second time to sell its troubled Caritas Christi Health Care, according to industry officials, jeopardizing the ability of New England's second largest hospital chain to offer top-flight medical care.

As a result of the failure to reach a deal with a Catholic healthcare chain based in Denver, the archdiocese accelerated its search for a new chief executive at Caritas Christi, said the healthcare industry officials, who have been told about the developments.

The hospital chain also hired former attorney general Thomas F. Reilly as it seeks to steady operations and refocus on operating its healthcare business instead of seeking a merger with another Roman Catholic healthcare organization. Reilly may help make a case to insurance companies that Caritas Christi's hospitals are distressed, which could enable them to win higher reimbursement rates, according to a healthcare industry official familiar with his work with other hospitals.

The archdiocese has been trying for nearly a year to get out of the healthcare business by finding a partner for Caritas Christi, which has been struggling financially and losing patients in recent years.

For now, the chain will continue to operate independently, but it will likely have a difficult time competing in the tough Boston marketplace, in part because it pays higher interest rates to borrow money than some competitors.

That could make it harder for Caritas Christi hospitals - led by its flagship, St. Elizabeth's Medical Center in Brighton - to buy the latest medical technology and offer the highest quality healthcare at the same time the area's major teaching hospitals are investing heavily in new equipment. St. Elizabeth's has also lost several marquee doctors who performed lucrative medical procedures, particularly in urology, orthopedics, and cardiology.

"The problem with the go-it-alone strategy is access to capital and technology," said Dr. Marc A. Bard, chief executive of the Bard Group, a hospital consulting firm in Needham.

"From what I've seen, they're going to pay a pretty high debt premium for their capital," Bard said of Caritas Christi.

The chain has struggled to find its way since its former chief executive, Dr. Robert M. Haddad, was forced to resign in May 2006 over allegations he had sexually harassed several women employees. In February, Caritas Christi signed a letter of intent with Ascension Health, the nation's largest Catholic healthcare system, under which the St. Louis company would take over Caritas Christi, including its debt, which now totals about $275 million.

But in June, the deal collapsed, partly because of Ascension's concerns about Caritas Christi's finances. At the time, the archdiocese said it was resuming its search for a new chief executive but was still "open to exploring an appropriate and mutually agreeable affiliation."

Catholic Health Initiatives of Denver had been a finalist before Caritas Christi signed a letter of intent with Ascension, and talks between the two groups had recently resumed.

Michael Romano, director of media relations for Catholic Health Initiatives, declined to comment directly on the failed merger with Caritas Christi. "We continue to explore possible affiliations to expand our services," he said, but "there are confidentiality agreements and we can't talk about any individual discussions."

A spokesman for the archdiocese also declined to comment on the failed talks. Reilly did not return phone calls, but a spokeswoman for the law firm where he works, Greenberg Traurig LLP, said he was traveling and could not be reached.

Caritas Christi is second in size in New England only to Partners Healthcare System Inc., which runs Massachusetts General Hospital and Brigham and Women's Hospital, among others. Caritas Christi treated 70,000 inpatients last year and handled about 13 percent of hospital visits in the Boston area.

If the archdiocese were to resume the search for a business partner, it would have to be one committed to preserving Caritas Christi's mission of providing Catholic healthcare. That means it could not provide abortions or birth control, restrictions that severely limit the number of potential partners.

One of Caritas Christi's major obstacles is it that it must pay more to borrow than many of its competitors. For example, Partners has an "AA" debt rating from Standard & Poor's, one of the country's major debt rating firms, while Caritas is rated significantly lower at "BBB."

Part of the reason for the debt rating is that Caritas Christi needs to invest in buildings and equipment, but already has high levels of debt. The chain has "ample capital needs," Standard & Poor's said in a July 30 report.

"The problem is if you spend to bring your buildings and grounds and beds up to contemporary standards, you have nothing left to invest in tomorrow's technology to make you competitive in the market," said Bard, the hospital consultant.

Caritas Christi's network includes Caritas Norwood Hospital, Caritas Carney Hospital in Dorchester, Caritas Good Samaritan Hospital in Brockton, St. Anne's Hospital in Fall River, and Caritas Holy Family Hospital in Methuen.

The chain earned $22.4 million in 2006, but has struggled so far this year. For the eight months ended May 31, Caritas Christi had a loss of $2.1 million from operations. Admissions through July were down 2 percent from 2006 - 4.3 percent below what Caritas Christi was expecting - according to Standard & Poor's.

Also, the Standard & Poor's report said, the loss of some well-known doctors has "substantially affected volumes and profitability as these clinical areas generally provide a high volume of procedures and surgeries, which in turn bolster the bottom line."

Jeffrey Krasner can be reached at krasner@globe.com.

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