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Ranks of for-profit hospitals may grow

Caritas owner pursues deals in Taunton, Lowell

'That’s a huge deal,' said Senator Marc Pacheco, of the prospect of towns getting taxes from for-profit hospitals. "That’s a huge deal," said Senator Marc Pacheco, of the prospect of towns getting taxes from for-profit hospitals.
By Robert Weisman and Liz Kowalczyk
Globe Staff / March 30, 2011

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For-profit health care is expanding in Massachusetts, with community hospitals in Taunton and Lowell expected to soon disclose deals to be sold, probably to Steward Health Care System, while other struggling nonprofit hospitals around the state ponder similar bids.

Steward, the Boston for-profit company formed last year to run the six Caritas Christi hospitals in Eastern Massachusetts, appears to have the upper hand in bidding for Morton Hospital and Medical Center in Taunton, according to people briefed on the negotiations. It also has a preliminary agreement to buy Saints Medical Center in Lowell, they said, speaking on condition of anonymity because talks are confidential.

A national for-profit hospital chain, Vanguard Health Systems, also has taken part in both competitions and is hunting to buy hospitals elsewhere in the state.

Neighboring nonprofits that might have been seen as the most logical buyers in the past — Southcoast Hospitals Group in New Bedford and Lowell General Hospital — have found themselves at a disadvantage in their bidding for the two hospitals against the better-funded Steward, owned by private equity firm Cerberus Capital Management.

“We’ve made them a very fair and competitive offer,’’ said Keith Hovan, chief executive of Southcoast, which has been vying for Morton Hospital. “And we’ve made a commitment to keep their campus open. But there is this for-profit phenomenon emerging in the state.’’

Southcoast bought advertisements last week in six regional newspapers, highlighting the virtues of nonprofit hospitals without making mention of a possible Morton sale or its rivalry with Steward. “We are committed to care on Main Street, delivered by those who live on Main Street, controlled by Main Street,’’ the ads read.

Dominican Sister Vimala Vadakumpadan, chairwoman of the board at Steward-owned St. Anne’s Hospital in Fall River, has a different view based on her recent experience with for-profits. She said St. Anne’s new owner already has bankrolled new operating rooms and a renovated emergency department. “We wanted to give the best health care and keep our Catholic identity, and they were able to assure that,’’ she said.

In Taunton and Lowell, and at a larger hospital system on Cape Ann, community hospitals in financial trouble have been torn between starkly different would-be buyers: neighboring institutions promising to maintain their nonprofit community missions, and investor-owned chains that can fund the clinical and technology investments they need to compete — while providing a return to their owners.

The decisions by Morton and Saints will be the first of several this year that could begin to change the makeup and direction of the state’s hospital industry, historically dominated by nonprofits rooted in their communities. Northeast Health Systems of Beverly is expected to choose between two nonprofits and a pair of for-profit bidders later this spring. Cambridge Health System is seeking an alliance with a stronger hospital. And Quincy Medical Center said it has hired an investment bank to evaluate “strategic options,’’ a process that could lead to a sale.

Northeast Health, which owns Beverly Hospital, Addison Gilbert Hospital in Gloucester, and BayRidge psychiatric hospital in Lynn, is weighing bids from Steward and Vanguard, as well as nonprofits Lahey Clinic in nearby Burlington and Beth Israel Deaconess Medical Center in Boston.

“My expectation is that we will have a decision made by the end of June,’’ said Ken Hanover, chief executive of Northeast.

Acquisitions by for-profits at Morton, Saints, or Northeast could influence the future competition many expect for community hospitals from the Berkshires to Plymouth County, which may conclude they are too small to go it alone as more integrated health care systems are formed to coordinate patient care and divvy up insurance payments.

“When you see the first wave come in,’’ said health care consultant Jon Kingsdale, managing partner in the Boston office of Wakely Consulting Group, it’s hard to know what it portends for the future.

Hospital physicians will be an important factor in all of the decisions. State and federal regulators are working on sets of standards for how groups of doctors and hospitals can operate as “accountable care organizations.’’ Such groups will band together to coordinate patient treatment based on annual budgets, instead of charging separate fees for every service and procedure.

The federal standards, which are scheduled to be released this week, could influence hospital sales by giving sellers a better idea of how they might fit into broader medical care networks.

“The hospitals are filling holes,’’ said Marc A. Bard, managing director of advisory firm Navigant Consulting in Needham. “They need greater range and scale in providing clinical services.’’

Labor unions and consumer advocates say they see little difference in how nonprofit and for-profit hospitals operate.

“If you did a philosophic appraisal, we have a preference for nonprofits,’’ said Julie Pinkham, executive director for the Massachusetts Nurses Association. “But that horse has left the barn. Whether they’re for-profits or nonprofits, they have all developed business-oriented models.’’

And for cash-starved municipalities, the promise of taxes from hospitals converted from nonprofit status looms large. “That’s a huge deal for communities, especially when they’re facing all these local aid cuts,’’ said state Senator Marc R. Pacheco, Democrat of Taunton.

In addition to the six Catholic hospitals it runs in the state, Steward agreed in December to pay $21 million for Merrimack Valley Hospital in Haverhill and Nashoba Valley Medical Center in Ayer. Those deals await approval by the state.

While competing nonprofit hospitals have argued they are closer to their communities, Steward chief executive Ralph de la Torre said “the term nonprofit is a complete misnomer’’ in the Massachusetts hospital industry where many nonprofit hospitals post large financial gains and provide relatively little care to uninsured patients, despite their tax-exempt status.

A survey of 613 state residents last year, conducted by Marttila Communications Group for Steward’s predecessor, Caritas Christi Health Care, found that most people didn’t know the overwhelming majority of Massachusetts hospitals were nonprofit and didn’t perceive a difference in patient care between nonprofits and for-profits.

“Among the intelligentsia, there is a bias’’ against for-profit hospitals, de la Torre said. “In the general public, there is no bias.’’

Vanguard, based in Nashville, has owned MetroWest Medical Center in Framingham and St. Vincent Hospital in Worcester since July 2005. The company has purchased 10 hospitals nationwide over the past year, said Joe Mullany, president of the New England market for Vanguard, which is owned by its management team and the private equity firm Blackstone Group. Mullany said Vanguard is committed to health care quality and safety, but “we have access to capital that you wouldn’t have as a small, independent community hospital.’’

Morton chief executive Maureen Bryant declined to talk about the pending sale. But hospital spokeswoman Diana Pisciotta said its search for a buyer was driven by falling insurance receipts and the need to invest in technology, staffing, and infrastructure.

The buyer must “share Morton’s longstanding commitment to providing high quality health care services to the community, offer a long-term vision, and have the capacity to grow and change as the environment around us continues to change,’’ Pisciotta said.

Saints Medical Center president Steve Guimond also would not discuss negotiations to sell that Catholic hospital. In recent years, Saints has rebuffed several offers from rival Lowell General Hospital, which has competed with Saints to affiliate with doctors in the Lowell area.

For-profit owners could increase hospital competition — a plus in an era of soaring medical costs — by bringing a new player into the Taunton and Lowell markets, said Kingsdale at Wakely Consulting.

“The downside is uncertainty,’’ he said. Because for-profits tend to buy and sell properties whenever it’s advantageous, “you don’t know where you’re going to be five years from now,’’ he said.

Robert Weisman can be reached at weisman@globe.com; Liz Kowalczyk at kowalczyk@globe.com.

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