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State OK’s new licenses for Caritas

By Robert Weisman
Globe Staff / October 14, 2010

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With the state Public Health Council voting unanimously yesterday to grant new licenses for Caritas Christi Health Care’s six hospitals, including St. Elizabeth’s Medical Center and Carney Hospital in Boston, the Catholic health care system will now petition the state’s highest court to transfer ownership to a New York private equity firm.

Approval by the Supreme Judicial Court, which is expected to act this month, would create the state’s first large for-profit health care chain under the umbrella of Cerberus Capital Management. Cerberus has set up a holding company, Steward Health Care System LLC, to operate the hospitals.

The council issued the licenses after a meeting at Suffolk University Law School in Boston that lasted more than three hours. It imposed two conditions recommended by the staff of the Department of Public Health. One was to strengthen translation services at the Caritas hospitals. The second was to continue community health initiatives, ranging from substance abuse preven tion to wellness and nutritional programs.

In a departure from usual practice, the council invited public comment, allowing supporters and critics of the Caritas acquisition to reprise arguments from last summer’s hearings cosponsored by the public health department and the state attorney general’s office.

“This raises a wider range of issues than the typical transfer of ownership,’’ said Joan Gorga, director of the public health department’s “determination of need’’ program, who led the review.

Caritas chief executive Ralph de la Torre, who will continue to the run the system for Steward, was peppered with questions from council members. One of them, Dr. Alan C. Woodward, asked about the “sustainability’’ of the business model.

“You’re going to incur, as you convert from nonprofit to for-profit, significant new costs in the form of taxes and return to investors,’’ Woodward said. “How do you get from point A to point B?’’

De la Torre said his aim was to stop the “leakage’’ of patients from communities served by Caritas hospitals to academic medical centers in Boston.

“The business plan, the strategy, or whatever you want to call it, is all about keeping care locally,’’ he said. “If we improve the facilities, improve the infrastructure, make it so that our very own patients want to stay in our hospitals, that’s the business plan.’’

Cerberus has promised to make about $400 million in capital improvements at Caritas hospitals, which also include Norwood Hospital, Good Samaritan Medical Center in Brockton, Saint Anne’s Hospital in Fall River, and Holy Family Hospital in Methuen. In addition, it has agreed to spend $495 million to retire debt, including the unfunded pension obligations for 13,000 employees and retirees.

The new holding company “will continue to promote the public interest after this transaction,’’ Lisa Gray, Cerberus general counsel executive and a Steward board member, told the council.

Attorney General Martha Coakley last week recommended that the Caritas sale be approved with conditions, among them: that Cerberus keep the hospitals open for three years, and at least two more if they meet certain financial measures; that it fully fund the pensions; that it maintain mental health services; and that it remain subject to public oversight and fund a $1.5 million study on the deal’s impact.

At yesterday’s meeting, David Spackman, chief of the attorney general’s public charities division, defended the conditions against criticism that they don’t go far enough. “Frankly, I’m quite comfortable and quite proud of them,’’ Spackman said, noting that the few investor-owned hospitals now operating in Massachusetts price their medical services in the middle-to-low range.

Not everyone was as enthusiastic about the sale.

“Cerberus is not like the other for-profit hospitals because it has no history with health care,’’ said Lauri A. Martinelli, chairwoman of the Dorchester House community health center, which refers patients to Carney Hospital. Martinelli said she wants the new owner to commit to keeping a specific number of psychiatric beds.

A group of competing hospitals calling themselves the Health Care Access Coalition pressed the council to impose stricter conditions, including safeguards against Cerberus poaching doctors from rivals. “We’re concerned it will, or may, engage in predatory practices,’’ said Boston lawyer Donald K. Stern, who represents the coalition.

C. J. Doyle, executive director of the Catholic Action League of Massachusetts, warned that Cerberus “will replace Catholic social justice teaching with the free market law of supply and demand.’’

But just as they did during a series of summer hearings on the proposed sale, elected officials, labor leaders, and Caritas employees spoke in favor of the sale.

“The six hospitals have a long history of serving and being part of the community,’’ said Sister Marie Puleo, the interim president of Carney. “For all of those years, the Catholic identity has been a source of strength for our community, and it will continue to be.’’

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

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Through the years

Photos of Caritas-owned hospitals through the years.
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