|CEO Ralph de la Torre has played shuttle diplomat during talks between Caritas, its buyer, and the attorney general.|
Accord near for sale of Caritas
Would protect hospitals, pensions
Representatives of Caritas Christi Health Care, the private equity firm seeking to buy it, and the attorney general’s office are working on a tentative agreement to protect the retirement plans of 13,000 employees and keep the chain’s hospitals open for at least five years.
With state regulators preparing to rule soon on the proposed sale to Cerberus Capital Management, the parties have been locked in frantic negotiations in recent weeks. The talks intensified after Caritas discovered an additional $45 million shortfall in its unfunded pension liability and critics of the deal pressed for the New York firm to be held to stringent conditions, according to people familiar with the talks.
Those people, who asked not to be identified because they were not authorized to discuss the matter, said the buyout plan twice fell apart during the three-way negotiations, but was salvaged. Ralph de la Torre, the Caritas chief executive, played shuttle diplomat during the talks, conveying the positions of Cerberus and Attorney General Martha Coakley, the three people said.
Ultimately, the parties reached an understanding that the takeover could proceed with conditions, though the language of the agreement has yet to be finalized. Among the likely terms:
■ Steward Health Care System LLC, the holding company set up by Cerberus to run the six Caritas hospitals, will fund $260 million in pension liability rather than the $215 million it initially agreed to as part of a $430 million payment to cover Caritas debt. Overall, Cerberus will now pay down $475 million in debt and has agreed to make $400 million in capital improvements.
■ The buyer will guarantee not to close any hospitals, including the flagship St. Elizabeth’s Medical Center in Brighton and Carney Hospital in Dorchester, for three years. That commitment will be extended for at least two more years unless certain financial performance criteria come into play.
■ Steward will continue offering behavioral and mental health services at Caritas hospitals, operations that are losing money.
■ The attorney general’s office will maintain financial oversight of Caritas hospitals even after they have been converted from nonprofits to investor-owned businesses. In addition to the two Boston hospitals, which Caritas executives have warned they will have to close if they can’t get a capital infusion from Cerberus, Caritas runs Norwood Hospital, Good Samaritan Medical Center in Brockton, Saint Anne’s Hospital in Fall River, and Holy Family Hospital in Methuen.
Chris Murphy, a Caritas spokesman, would not confirm details of the negotiations.
“We remain optimistic a deal will be reached that benefits the pensioners, the employees, and most important the patients of the Caritas communities,’’ Murphy said. “But getting from point A to point B has not been easy.’’
Jill Butterworth, a Coakley spokeswoman, also would not comment on the talks, nor would Cerberus managing director Timothy F. Price, who cited the firm’s policy not to discuss matters under regulatory review.
Cerberus’s agreement in principle to buy Caritas, struck last winter, is awaiting a report from Coakley’s office. It will make a recommendation to the Supreme Judicial Court of Massachusetts, which would have to approve a change to for-profit status. The deal also needs approval from the state Public Health Council, which must approve new licenses for the hospitals.
The deal was put in jeopardy late in the summer when Caritas determined its unfunded pension liability — the cash it must have on hand to pay retirees and those soon to retire — had ballooned by $45 million to $260 million, due to the performance of its investment portfolio and falling interest rates.
Cerberus executives initially balked at boosting their financial commitment, but ultimately concluded it was necessary to satisfy regulators’ concerns, the people familiar with the talks said.
At the same time, consumer advocacy groups, including Boston-based Health Care for All, have been talking with Caritas and Massachusetts officials about conditions they say are needed to ensure that access to medical care will not be diminished by the buyout. Some of those proposals have been incorporated into the conditions Caritas and Cerberus have agreed to in discussions with regulators.
“We look forward to reading what the attorney general’s report and findings will be, but we’re very encouraged by what we’re hearing,’’ said Amy Whitcomb Slemmer, executive director of Health Care for All.
But changing market conditions in the six months since the deal was unveiled — including flat Medicare rates, declines in Medicaid payments, and a tougher line struck by private insurers — have created a difficult business environment for Caritas. In addition to the larger pension shortfall, Caritas officials now project their health care insurance reimbursement will climb only about 1.7 percent in coming years, rather than the 3 percent to 4 percent they had expected, according to the people familiar with the negotiations.
To make up the difference, Caritas laid off a small number of managers and administrators, decided against filling open positions, and took other steps to cut expenses. It has also stepped up an early retirement program begun last spring and wants to freeze the wages of nurses represented by the Massachusetts Nurses Association.
Robert Weisman can be reached at email@example.com.