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R.I. judge clears sale of hospital to Steward

It would be Boston for-profit chain’s first deal outside of Mass.

Ralph de la Torre, CEO Ralph de la Torre, CEO
By Robert Weisman
Globe Staff / June 1, 2011

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A judge in Rhode Island ruled yesterday that Steward Health Care Systems LLC of Boston can move forward with negotiating a takeover of financially troubled Landmark Medical Center in Woonsocket, which has been in court-appointed receivership for the past three years.

Landmark had begun talking about a sale to Steward’s predecessor, Caritas Christi Health Care, in 2009, but the talks broke off in December without an agreement. The parties recently resumed negotiations and were working yesterday to finalize the terms of a buyout agreement that could be unveiled today.

If a deal is reached, it would need Rhode Island regulators’ approval and represent Steward’s first out-of-state acquisition.

The 8-month-old holding company is building a chain of for-profit community hospitals in Massachusetts and beyond under the direction of its ambitious chief executive, Ralph de la Torre.

Steward was created by Cerberus Capital Management, a private equity firm, to run the six Catholic hospitals in the Caritas system, which it bought last fall. The hospitals, including St. Elizabeth’s Medical Center and Carney Hospital in Boston, were converted from nonprofit to for-profit institutions.

Since then, Steward has purchased two more for-profit hospitals, Merrimack Valley Hospital in Haverhill and Nashoba Valley Medical Center in Ayer, and struck deals to buy two nonprofits, Morton Hospital and Medical Center in Taunton and Saints Medical Center in Lowell.

The talks with 214-bed Landmark had bogged down last year, partly because Steward’s executives were unable to negotiate higher payments from Blue Cross Blue Shield of Rhode Island, the state’s largest health insurer. Blue Cross and Steward still have not agreed on a new insurance contract for Landmark, and the insurer yesterday objected to the pace of Landmark’s talks with Steward.

Blue Cross, one of Landmark’s largest creditors, is owed $3 million by the Woonsocket hospital, said Kimberly Reingold, a spokeswoman for the insurer. Since the Landmark talks with Steward broke off last year, Blue Cross has been negotiating with several other potential buyers of the hospital, she said.

“There are a number of unresolved issues, including Steward negotiating a contract with us, as well as how Blue Cross Blue Shield of Rhode Island will be made whole on the $3 million in back debt that is owed to us,’’ Reingold said in a statement.

“Blue Cross Blue Shield of Rhode Island has been and remains willing to negotiate a fair and reasonable contract with any bidder, but we have not yet been approached on contract specifics since Steward reentered negotiations.’’

A Steward spokesman declined to discuss the Blue Cross statement or the negotiations with Jonathan Savage, the court-appointed special master bargaining on behalf of Landmark. A spokesman for Savage did not return phone calls.

Another issue is whether Landmark would remain a secular hospital or be converted to a Catholic hospital. During the earlier talks with Caritas, the Boston hospital system had said it planned to convert the Woonsocket hospital into a Catholic institution. Steward has maintained the Catholic identity of the former Caritas hospitals but has also purchased secular hospitals without converting them.

A Rhode Island Superior Court judge, Michael A. Silverstein, who must rule on any takeover of Landmark, has considered at least three potential buyers besides Steward. But he decided yesterday that only the Boston company met all of his criteria.

If a deal goes through, Landmark would be the state’s first for-profit hospital.

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