Sale not yet OK’d, Caritas aims to expand
Although regulators have yet to approve the sale of Caritas Christi Health Care to a New York investment firm, the hospital chain is already taking steps to expand by buying other community hospitals.
Caritas chief executive Ralph de la Torre has been quietly courting area hospitals about potential mergers in a bid to expand the system of six Catholic hospitals in Eastern Massachusetts, according to several health care executives with knowledge of the talks.
People who know de la Torre say he wants to create a chain large enough to compete in markets outside Boston with nonprofit Partners HealthCare, the state’s largest medical provider and owner of Massachusetts General Hospital and Brigham and Women’s Hospital.
Among those de la Torre has held discussions with is Essent Healthcare Inc., owner of Merrimack Valley Hospital in Haverhill and Nashoba Valley Medical Center in Ayer, two people briefed on the discussions said. Caritas also has just completed another step in the process of acquiring Landmark Medical Center, a Woonsocket, R.I., hospital in state receivership because of its poor financial condition.
Chris Murphy, spokesman for Boston-based Caritas Christi, declined to discuss whether the group is looking to strike new deals, saying its immediate priority is to finalize the $830 million sale to Cerberus Capital Management, which would convert Caritas to a for-profit concern. Only when the sale is approved by regulators, Murphy said, will Caritas work on a makeover that could include buying other hospitals, clinics, nursing homes, and rehabilitation and surgical centers.
Caritas, the state’s second-largest hospital chain behind the dominant Partners HealthCare, has made no secret of its desire to build a larger network. De la Torre was courting other community hospitals prior to the Cerberus agreement, but the equity firm’s backing will make it easier. Some hospitals are already approaching him, health care industry executives said.
“Everybody’s talking to everybody else right now,’’ said Marc Bard, managing director of Navigant Consulting in Boston, which has done work for Caritas in the past. Bard said Caritas and its rivals are interested in building strategic alliances at a time when competition for health care dollars is increasing.
De la Torre “is a very persuasive individual,’’ Bard said, “but he’s not doing anything that every other system isn’t trying to do right now.’’
A series of six hearings on the proposed sale of Caritas to Cerberus — held by the Department of Public Health and attorney general’s office — began last night in Brockton.
Before it can be finalized, the deal requires approval from the health department and the state Supreme Judicial Court, based on a recommendation from the office of Attorney General Martha Coakley.
In addition, the Vatican must agree to the purchase. The Archdiocese of Boston, which created the Caritas Christi system, has said Cerberus ownership is the best option for preserving the financially strapped chain’s mission.
Under terms of the deal, Cerberus said it will follow the Catholic church’s ethical and religious directives, but can opt out of that part of the agreement by paying $25 million to a charity selected by the archdiocese.
Cerberus also promised to keep the hospitals’ 12,000 employees and won’t sell the hospitals or take them public for at least three years.
Kim Fox, a spokeswoman for Essent, a for-profit hospital company based in Nashville, declined to comment on whether Merrimack Valley and Nashoba Valley hospitals had been approached by Caritas. “We’re always looking for opportunities,’’ she said.
Merrimack Valley Hospital, with 107 beds, had one of the largest deficits among Massachusetts hospitals in 2008, at $8 million, according to a state report, second only to Caritas Carney Hospital in Dorchester. Merrimack has lost money in each of the last five years, according to the state. Nashoba, with 57 beds, was profitable in the last two years.
Last week, a Rhode Island judge approved a management advisory contract under which Caritas would help to run Landmark, a 214-bed hospital. The hospital placed itself under a state court’s watch in 2008 as it attempted to engineer a financial turnaround. Under the court ruling, Caritas now has 60 days in which to also acquire Landmark’s assets.
Caritas has vowed to invest $20 million in capital improvements at Landmark, but consultants have said the hospital will require at least $20 million more. Landmark has asked the Rhode Island assembly to provide the added funding.
In a recent Massachusetts filing to justify its sale to Cerberus, Caritas presented its own financial condition as dire. After numerous failed efforts to find merger partners with Catholic or nonprofit hospitals, Caritas said, Cerberus offered a much-needed infusion of cash. Cerberus says it will pay off the chain’s debt, fund pension plans for nearly 13,000 current and former employees, and invest about $400 million over the next four years.
The chain includes St. Elizabeth’s Medical Center in Brighton, Carney Hospital in Dorchester, Norwood Hospital, Good Samaritan Medical Center in Brockton, St. Anne’s Hospital in Fall River, and Holy Family Hospital in Methuen. Good Samaritan has broken ground on a new $30 million, 32,000-square-foot emergency department, to be financed by Cerberus.