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Caritas owner widens its aims

Bids $1.1 billion on Fla. hospitals; Steward would double its size

By Beth Healy
Globe Staff / February 23, 2011

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Steward Health Care System, a company formed just months ago to run the newly privatized Caritas Christi hospitals, is making an aggressive effort to expand nationally with a $1.1 billion bid for medical facilities in Florida.

Steward, which was created after the New York private equity firm Cerberus Capital Management bought six Catholic hospitals in Massachusetts last November, sent a letter of intent Monday, offering to take over the financially troubled Jackson Health System in Miami for $600 million in cash and $500 million to cover debt.

The move is in keeping with the strategy of deep-pocketed Cerberus, which tapped Caritas chief executive Ralph de la Torre to lead the charge in assembling a large hospital chain in the Boston area — and beyond. Since acquiring Caritas, the firm has agreed to buy two other hospitals in the state, and de la Torre recently has made it clear that Steward does not plan to limit its growth to Massachusetts.

Steward executives yesterday declined to be interviewed on their first major foray outside the Northeast. In a statement, Bruce Rubin, the company’s Florida spokesman, said “intensive dis cussions with elected and appointed officials are just getting underway.’’

He said a purchase of the Jackson network in Florida would not draw resources away from the Massachusetts hospitals.

Jackson owns six hospitals, including its flagship Jackson Memorial teaching hospital, which has lost $350 million in two years and is on track to run out of cash by summer. The hospital treats a large number of poor and uninsured patients and handles most of the city’s trauma cases.

Attorney General Martha Coakley, whose office approved the Caritas hospitals’ conversion from nonprofits to a for-profit venture, said her agreement with Steward does not restrict its expansion out of state. Her office approved the Caritas deal based on a number of conditions, including the safeguarding of pensions and jobs.

“We remain committed to ensuring that Steward fulfills its obligations to Massachusetts residents under its agreement with our office,’’ said Harry Pierre, a spokesman for Coakley.

Cerberus, which manages $23 billion in investments, spent $895 million to buy the Caritas hospitals, including St. Elizabeth’s Medical Center in Brighton and Carney Hospital in Dorchester. As part of the deal, Cerberus agreed to assume $260 million in pension liabilities for workers and pledged to spend $400 million on new emergency rooms and surgery wards.

Since acquiring Caritas, the firm has agreed to buy Merrimack Valley Hospital in Haverhill and Nashoba Valley Medical Center in Ayer, but at a health care investment conference in San Francisco last month, de la Torre said Steward planned to replicate its Boston regional model in other locations across the country, building groups of hospitals that can compete on cost and attract higher volumes of patients.

A deal with Jackson would double Steward’s size, but it would also present deep challenges.

In wooing Jackson, Steward is pursuing a hospital group that has limited options — just as it did with its acquisition of Caritas. Before Cerberus bought Caritas, the chain had warned that it might not survive without a buyer, threatening 12,000 jobs and employee pensions as well as access to community health care.

Caritas and de la Torre successfully courted the union that represents a few thousand of the hospitals’ workers, and, with no other willing buyer in sight, the deal easily won approvals from the attorney general and the Supreme Judicial Court.

Analysts say a turnaround will be more difficult in Florida because Jackson, unlike Caritas, has not already begun a turnaround.

“This is a much more challenging situation than Caritas Christi,’’ said Paul B. Ginsburg, president of the Center for Studying Health System Change, a health policy research group in Washington. “Jackson is starting from the bottom.’’

Jackson is also open to bids from other potential investors. A Louisiana firm, Global Health Management, has expressed interest. Any deal with Jackson would have to be approved by the Public Health Trust, which oversees the system, as well as the Miami-Dade County Commission. The Miami Herald first reported the Steward bid.

Dr. Mark Rogers, a trustee on the Public Health Trust board and a former chief executive at Duke Hospital, said Jackson just recently decided to consider private investments for the ailing public hospital group. Even as it grapples with a dire financial situation, the board is concerned about maintaining its hospitals’ standards, he said.

“If we choose a partner that’s merely interested in cutting costs, we may end up hurting the University of Miami, the medical school, and the development of new centers of excellence at Jackson,’’ Rogers said. “We need to evaluate whether Steward would be interested in and be able to help support those activities, or whether their attention to cost-cutting will result in conflicts on these issues.’’

Complex political hurdles await any potential buyer of the Jackson hospital group. But counterbalancing any concerns the health trust and county commissioners may raise will be the reality of millions of dollars in losses looming over the hospitals.

Florida’s new governor, Rick Scott, in the 1990s ran the Nashville-based hospital giant Columbia/HCA, which in 2003 settled a $1.7 billion Medicare fraud case brought by the Department of Justice. (Scott left the company in 1997, as the investigation was beginning, and was not charged in the case.)

Rogers, the Public Health Trust board member, said it is unclear whether Cerberus’s brief time owning Caritas prepares it for the complexities of health care in Miami and the mission of teaching hospitals.

“Whether they’re qualified to do that or not, we don’t know,’’ Rogers said. “They’re apples, we’re oranges.’’

Beth Healy can be reached at bhealy@globe.com.