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Caritas owner to buy 2 more Mass. hospitals

By Robert Weisman
Globe Staff / December 9, 2010

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The new owner of the Caritas Christi hospital chain didn’t take long to expand its reach in Massachusetts.

Under a tentative sales deal to be unveiled today, Steward Health Care System LLC, the company formed by a New York private equity firm to run the six Caritas Christi Health Care hospitals it acquired last month, has agreed to buy two more community hospitals in the state.

The 124-bed Merrimack Valley Hospital in Haverhill and 57-bed Nashoba Valley Medical Center in Ayer — both owned by Essent Healthcare of Nashville — will be sold to Steward for a price the parties, both private businesses, aren’t disclosing.

That deal, which needs approval from public health regulators, comes a month after Cerberus Capital Management completed its takeover of the Caritas hospitals, including St. Elizabeth’s Medical Center in Brighton and Carney Hospital in Dorchester, in an $895 million transaction.

Steward, based in Boston, has agreed to retain employees and management at Merrimack Valley and Nashoba Valley.

It also promised to maintain the two hospitals’ current levels of free care and community benefits, and continue current clinical programs, including the psychiatric beds and in-patient behavioral health programs at Merrimack Valley.

If approved, the deal would be the first acquisition by Ralph de la Torre, the former Caritas chief executive tapped by Cerberus to run Steward and to aggressively extend its franchise in Massachusetts and beyond. Steward already is the region’s second-largest hospital system, with about 13,000 employees, and the largest investor-owned health care company in a state where most hospitals are nonprofit charities.

Other than the Caritas and Essent systems, there are only two other for-profit hospitals in Massachusetts: MetroWest Medical Center in Framingham and St. Vincent Hospital in Worcester, both owned by Vanguard Health System, another Nashville-based chain.

No other purchases are currently in the works, de la Torre said, but Steward will keep scouting for more hospitals to purchase in the coming year.

De la Torre said the two Essent hospitals mesh well with Steward’s business model: building an integrated chain of community hospitals sharing physicians, specialists, facilities, and medical records.

Such an “accountable care organization’’ is aimed at treating patients locally rather than sending them to more expensive downtown Boston hospitals for routine procedures, he said.

“These communities are exactly the communities we want to serve in Massachusetts,’’ de la Torre said. “It’s all about bringing care to the patients, not bringing patients to the care.’’

Michael W. Browder, chief executive of Essent, which bought Merrimack Valley in 2002 and Nashoba Valley the next year, said Massachusetts offers “one of the most challenging health care environments’’ because of its push to expand access and bring down costs by changing the way hospitals and doctors are paid.

Ultimately, he said, his board concluded Essent should either expand here or divest. Both hospitals were modestly profitable, Browder said, but made less money than Essent hospitals in Connecticut, Pennsylvania, and Texas.

“Steward is the perfect acquirer of these hospitals,’’ he said. “They’re home-grown. They’ve been in Massachusetts a lot longer than we have. They’ve been part of the debate over some of the things going on in Massachusetts and some of the things to come.’’

Unlike the six Caritas hospitals, which were founded as Catholic hospitals and retain that identity under Steward, Merrimack Valley and Nashoba Valley are secular and will be run as part of a separate operating unit within Steward, de la Torre said.

But they will share resources with Caritas hospitals, he added. In addition to St. Elizabeth’s and Carney, Caritas hospitals are Holy Family in Methuen, Norwood, Good Samaritan Medical Center in Brockton, and Saint Anne’s in Fall River.

“We’re going to see more and more hospital consolidation in Massachusetts,’’ said Mark A. Bard, managing director of Navigant Consulting in Needham, who has advised Caritas and other health care organizations in the state and nationally. “The more Steward sets the pace and trend, the more others will follow as well.’’

Bard said the company may try to establish St. Elizabeth’s as a referral center for specialties such as urology and ear, nose, and throat care, meaning patients from other hospitals in the chain would be sent to Brighton for those kinds of treatments.

An earlier effort to make St. Elizabeth’s a referral center under Caritas was unsuccessful, he said, but adding two hospitals to the organization would make the effort more likely to succeed.

“Everyone talks about economies of scale, but in reality they’re very rarely achieved,’’ Bard said. “This helps [Steward] with contracting and helps them build their physician network. Whether this significantly shifts patient volume away from the local competition remains to be seen.’’

The company plans to apply to the state Public Health Council for new licenses for the Haverhill and Ayer hospitals, a process likely to trigger public hearings and a recommendation by the staff of the state Department of Public Health.

But the deal won’t require a review by the state attorney general’s office or approval by the Supreme Judicial Court of Massachusetts, whose approval was needed for the Cerberus buyout of Caritas because it represented a transfer of nonprofit assets to a private company.

Under an agreement signed by both parties, Steward will provide an unspecified amount of money for ongoing clinical and other projects at the two hospitals, including electronic medical records, clinical and physician order-entry systems, and improvement of programs for care management and disease prevention.

Merrimack Valley, which has 550 employees, is led by chief executive Michael F. Collins. Nashoba Valley, with 530 workers, is headed by chief executive Steven P. Roach.

While the Ayer hospital is not unionized, some employees at the Haverhill hospital are represented by the Massachusetts Nurses Association, while others belong to Local 1199 of the Service Employees International Union.

Both unions also represent employees at most Caritas hospitals.

Robert Weisman can be reached at weisman@globe.com.

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