The Archdiocese of Boston's tentative deal to hand over its troubled Caritas Christi Health Care system to Ascension Health of St. Louis collapsed yesterday after five months of research by Ascension showed the hospital chain was in worse financial shape than it expected, according to officials at competing hospitals and others familiar with the talks.
Ascension found large unfunded pension liabilities and a rapid decrease in the number of patients being referred for treatment at Caritas Christi's six hospitals. It was also concerned about a $10 million overstatement in revenue at the system's physicians group that was disclosed in May.
Another obstacle for Ascension, according to a person close to the discussions, was that Ascension wanted an agreement under which archdiocese officials -- including Cardinal Sean P. O'Malley and chancellor James P. McDonough -- could have been held personally liable for future problems such as financial shortfalls.
"While we hoped to reach a definitive agreement, regrettably, after months of good faith efforts, we have collectively determined that is not possible and we have agreed not to pursue an affiliation," the archdiocese and Ascension said in a statement. Officials from both organizations declined to comment further.
With the deal dead, Caritas Christi said yesterday it is resuming an "aggressive" search for a chief executive, which it put on hold when it began searching for a merger partner. The post has been empty since Dr. Robert M. Haddad resigned last year amid allegations he inappropriately touched female employees.
But Caritas Christi said it is also still open to a deal with another partner committed to Catholic healthcare.
Terms of the deal being negotiated since February with Ascension had not been disclosed, but executives at competing hospitals believed Ascension would assume Caritas Christi's large debt and that little money would change hands. The system has $275 million in debt.
According to the person close to the discussions , a crucial point of disagreement was Ascension's unwillingness to guarantee it would pump more money into the Caritas Christi system "well into the future."
In addition, Caritas Christi also wanted seats on Ascension's board of trustees, according to another source with knowledge of the situation. Ascension rejected the request, the source said.
The deal's failure leaves Caritas Christi in a vulnerable position because it is losing patients and has limited access to capital.
"This is a blow to Caritas," said Ellen Lutch Bender , who runs a healthcare consulting firm in Boston. "Caritas's ability to stabilize itself long term in the absence of a merger or affiliation will be a struggle."
Ascension, the nation's largest Catholic healthcare system and largest nonprofit healthcare system, has 65 hospitals and other facilities in 20 states. The Caritas Christi system is the second-largest hospital chain in Massachusetts after Partners HealthCare System Inc., and employs about 12,000. It includes St. Elizabeth's Medical Center in Brighton, Carney Hospital in Dorchester, Caritas Good Samaritan Medical Center in Brockton, Caritas Holy Family Hospital in Methuen, St. Anne's Hospital of Fall River, and Caritas Norwood Hospital.
The system has struggled in recent years in an increasingly competitive healthcare industry. St. Elizabeth's Medical Center in Brighton, an academic hospital affiliated with Tufts University School of Medicine, is overshadowed by Harvard-affiliated teaching hospitals in Boston.
St. Elizabeth's, along with Carney and Holy Family, is among the worst-performing hospitals in the Boston area, according to statistics compiled by the state Division of Health Care Finance and Policy. For the six months of the 2007 fiscal year ended March 31, St. Elizabeth's inpatient volume dropped by 5.5 percent. That followed a 7.5 percent drop, to 15,723 inpatients, for fiscal year 2006.
Caritas Holy Family's inpatient volume dropped 5 percent during the first six months of 2007, after a drop 5.1 percent in the previous fiscal year. Carney Hospital's inpatient volume fell by 5.9 percent in the first half of 2007, after a drop of 2.9 percent in the previous fiscal year. Carney has lost money in two of its last five fiscal years despite receiving multimillion-dollar subsidies from the state.
The immediate danger to Caritas Christi hospitals could be an increase in the number of doctors leaving the system. Doctors on staff and those with referral privileges are essential to providing the chain's hospitals with a flow of patients.
"It's going to be very hard for Caritas to be competitive if they don't have money to invest in technology," said Dr. Marc Bard , a partner with the Bard Group, a Newton firm that does consulting work with hospitals. "The doctors want to practice in the technologically most advanced settings, and the patients want to go where the best care is provided," Bard said.
In an e-mail response to questions, a Caritas spokesman said that although the system's pension faced large shortfalls in the past, it is now fully funded.
Another concern is the status of Carney Hospital, which is considered vulnerable because it is a small community hospital surrounded by larger competitors.
"I worry for the future of the wonderful jewel in my district, Carney Hospital," said Boston City Council president Maureen E. Feeney. "I hope that the Archdiocese of Boston fully appreciates what is at stake in these negotiations. For the greater good, I urge church leaders to calculate the total impact of their decisions, not simply the financial bottom line."
Caritas Christi's options going forward are limited. Mayor Thomas M. Menino and other officials have bristled at the possibility that the chain might be sold to a for-profit hospital system.
Before announcing the tentative deal in February, Caritas had spoken with two other Catholic groups: Catholic Health East of Newtown, Pa., and Catholic Health Initiatives of Denver.
Jeffrey Krasner can be reached at email@example.com.