A Decade of Failed Hospital Mergers Plagues RI Healthcare System

Monday, March 07, 2022

GoLocalProv Business Team

 

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PHOTO: File

Over the past twenty years, there has been a near-endless string of mergers and failed deals involving Rhode Island’s hospitals.

Few, if any of the wheelings-and dealings, have been beneficial to Rhode Islanders. The deals have led to massive lawsuits, the state’s largest pension plan failure, and the closing of one hospital.

Three weeks ago, Lifespan and Care New England announced they were withdrawing their merger application with the State of Rhode Island.

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The two largest hospital groups in Rhode Island were forced to after the U.S. Federal Trade Commission and the Rhode Island Attorney General Peter Neronha announced that they were suing to block the proposed deal.

It is the latest business failure for the leadership of Care New England and Lifespan. Rhode Island’s hospital groups may be better known for failed business strategies than healthcare.

 

One Mega-Merger Lead to Years of Litigation

The first significant mega-merger failure was between Lifespan and Boston-based New England Medical Center deal in the early 2000s. 

That deal unraveled and sparked years of litigation.

According to the federal court case that went on for years, “Lifespan Corporation, which runs a network of hospitals in Rhode Island, sued New England Medical Center ('NEMC'), a Massachusetts hospital that had briefly joined Lifespan's system, alleging that NEMC failed to make various payments required by their disaffiliation agreement.

NEMC, accusing Lifespan of gross misconduct during their affiliation, brought counterclaims for contractual indemnification, breach of fiduciary duty, unjust enrichment, and unfair business practices.”

 

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Memorial Hospital bought and closed by Care New England in 5 years, 800 jobs lost PHOTO: GoLocal

Care New England’s 15 Years of Failures

Over the past 15 years, Care New England has been involved in one acquisition, closed a major hospital, and a led a series of failed merger discussions.

In 2013, Care New England acquired Memorial Hospital located in Pawtucket.

“It is very exciting to be at this point, and to officially welcome Memorial Hospital to Care New England,” said Dennis Keefe, president and CEO of CNE in 2013. “The system as a whole has been keenly focused on improving the way health care is delivered to our patients and their families. Memorial Hospital and its rich legacy in the Blackstone Valley is an ideal addition to our system”

The closing [of the deal] came two months after the affiliation received state approval from then-Director of Health Michael Fine, MD, and then-Attorney General Peter Kilmartin, capping a collaborative and constructive review process. This process included public review by the Health Services Council as part of the Department of Health’s (DOH) Change in Effective Control review, and review by the DOH at Attorney General’s Office under Rhode Island’s Hospital Conversions Act.

As part of the deal, Care New England agreed to “refinance or discharge $11 million of Memorial's bond debt and cover its estimated $27 million to $36 million operational deficits through Sept. 30, 2016.”

The deal was a disaster.

Care New England lost in excess of $100 million and in less than five years the community hospital was closed.  More than 800 employees of the hospital lost their jobs.

Then, Care New England promised to provide an alternative healthcare facility after the closure, but no facility was ever developed.

Kilmartin and Fine also approved the sale of CharterCare to Prospect of California in 2014. The sale failed to provide the necessary safeguards and the pension fund for the ChaterCare affiliate St. Joseph Health Services was forced into receivership in just three years. The pension fund was underfunded by more than $100 million. The receivership has been immersed in litigation for more than four years.

Now, the Diocese of Providence is delaying the resolution of the ongoing litigation.

 

Failure, Failure, Failure

The recent failed merger with Lifespan was not Care New England’s first failed attempt to merge the two entities -- there were two previous attempts.

In addition, in 2015 Care New England was slated to merge with Southcoast Health System.

But, by 2016, that merger discussion ended.

In 2017 GoLocal first reported that “financially troubled Care New England has signed an agreement with Massachusetts-based Partners Healthcare [now re-branded Mass General Brigham] to explore a potential merger.”

Then, that deal unraveled -- Lifespan and Brown University first opposed the deal and then flipped. Lifespan had merger discussions with Partners. Brown then endorsed the deal.

Now, Care New England is faced with the reality of a failing financial model and few options.

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Care New England CEO James Fanale PHOTO: CNE

According to Care New England’s most recent financial documents secured by GoLocal, all of their key volume stats are down including discharges, observation patients, and surgeries. The only indicator that improved was emergency room visits — and that was directly tied to the spikes of the Delta and Omicron COVID-19 variants.

One indicator of the seriousness of the financial situation is the income position. Due to federal COVID money, Care New England as of December 31 of 2020 generated $30 million in revenue for the quarter, but in 2021 that number inverted to a negative $20 million — a $50 million negative swing.

Another area demonstrating significant financial stress is the company’s cash position. Care New England’s cash went from 81.7 days to 57.3.

Financials show that Care New England lost $20 million for the quarter in operation — these led to an increase in salaries of $13.8 million in part due to nursing shortages and “traveler usage, agency usage, premium pays in compensation adjustment to meet the market have escalated to provide adequate staffing levels, particularly at Kent" -- all of this while patient revenue decreased.

This distressed financial situation come after Care New England received $169 million in government grants, advance payment, and deferred payment relating to the COVID-19 response.

Now, a new player has entered the market. As GoLocal first reported, "Rhode Island’s hospital industry may have a new player -- Pennsylvania-based StoneBridge Healthcare."

The company has sent an offer to the financially troubled Care New England that totals $550 million and promises to keep the hospital group operating in a not-for-profit structure.

Questions continue to emerge about Care New England's financial viability and leadership after more than a decade of instability and failed deal-making.

 

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