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Landmark merger clears big hurdle

September 17, 2013

PROVIDENCE – The effort to save Landmark Medical Center gained a significant boost Tuesday as the state Department of Health’s Project Review Committee voted to recommend that acquisition of the Woonsocket-based, 214-bed hospital by Prime Healthcare Services, Inc., of California be approved by the department’s full Health Service Council next week.

Prime would pay approximately $62.8 million for Landmark under the proposal, while committing to make $30 million in new capital expenditures, $15 million in routine improvements at its facilities, and spending $4.5 million on physician recruitment.

Only one of the dozen subcommittee members attending, Steven Lonardo, abstained from the unanimous vote of approval. Lonardo noted his employer, Blue Cross, is currently in negotiations with Landmark over healthcare reimbursements while explaining his reasons for abstaining.

One member of the subcommittee, Roberta Feather, asked at one point in the discussion why Landmark’s operations could not simply be passed onto other facilities such as Memorial Hospital in Pawtucket or Sturdy Hospital in Attleboro, just 20 minutes away. “My question is do we need Landmark to continue?” Feather said.

But her peers advised Feather that such a consideration was not relevant to the Change in Effective Control application for Landmark before the committee. That review looks at factors such as the financial viability of the hospital after the change and the hospital’s ability to provide safe and adequate treatment, access to affordable care at the hospital for the underserved, and the applicant’s plans for changes with regard to services, according to Victoria Almeida, committee chair.

Another member, Theresa Jeremiah, said the panel has received many emotional responses from people in Northern Rhode Island in support of Landmark “because that facility is needed in that area. I think the general public agrees that we need a hospital in that area,” Jeremiah added.

The panel’s decision drew a sigh of relief from Landmark’s supporters, as well as renewed hope for a final vote of approval.

“This a great day for Landmark,” Landmark President Richard Charest said after the vote, while noting it to be a positive step forward in the hospital’s bid to survive.

“I think is a great day for Landmark because it shows the hospital’s importance to the people of Woonsocket and our surrounding communities, and in light of that importance I think it is fitting the application is moving forward,” Charest said. The vote was also an acknowledgement of all the work Landmark, its employees and members of the community have been putting into to keep the healthcare facility a viable entity in Northern Rhode Island, he added.

State Sen. Roger Picard (D-Dist. 20, Woonsocket, Cumberland), who joined fellow Woonsocket delegation member Rep. Lisa Baldelli-Hunt (D-Dist. 49, Woonsocket) in attending the subcommittee’s meeting at the Department of Health, said he was “excited’ about its decision.

“I know that this is another step that we have accomplished of the many that are needed and we have taken this application to the next level,” Picard said.

The for-profit Prime Healthcare chain’s application to add the long fiscally-troubled, not-for-profit Landmark to its 17-hospital network will now be considered by the full Health Service Council meeting next Tuesday afternoon, Picard noted.

“I am optimistic it will be approved,” he said. The recurring themes during the subcommittee’s review of the application have been ones of “maintaining quality health care in Northern Rhode Island’’ and also retaining Landmark’s “1,200 jobs in Woonsocket and North Smithfield,” Picard said. “Imagine if they closed, what would happen to the community,” he said.

The proposed acquisition includes Landmark’s acute care hospital, on Cass Avenue in Woonsocket, and its subsidiary, the Rehabilitation Hospital of Rhode Island, off Eddie Dowling Highway in North Smithfield
Landmark’s fate is being decided as the national healthcare industry undergoes significant changes, and there is significant pressure on those making local healthcare decisions to ensure the healthcare system can function in that environment, Picard noted.

“I see Landmark as an important piece of that system and I want to make sure that Landmark is going to be there to do that,” he said.
The subcommittee has held a series of meetings on Landmark’s proposed acquisition and reviewed reports on the financial difficulties that forced Landmark into state-managed receivership under a Superior Court-appointed special master in June 2008.

The hospital has continued to add to its losses, approximately $58 million as of June, while in receivership, and has benefitted from cash infusions, first from Steward Healthcare while it sought to acquire Landmark last year, and more recently from Prime while it sought approval for its application to acquire the Rhode Island healthcare corporation.

John J. Schibler, a healthcare consultant hired by the Department of Health to review Prime’s ability to fund its proposed acquisition, told project review panel members on Tuesday that he believes Prime does have sufficient resources to complete the purchase and run the Woonsocket-based hospital as a part of its growing chain of independently-operated healthcare facilities.

“Prime Healthcare Services has adequate financial resources to acquire and successfully assume the operations of Landmark,” Schibler said while offering the panel his summary of findings.

The California hospital company would pay approximately $43 million for Landmark to move it out of state receivership, a sum to including the $30 million in new capital expenditure for technology, and $8 million to pay back investments by Steward during its bid to buy Landmark and other parties, fees for closing cost and expenses, and forgiveness of approximately $3.6 million in working capital it has loaned the hospital while seeking to acquire it.

The deal would include another $19.5 million in added value from Prime that includes the $15 million in routine capital improvements, the $4.5 million in physician recruitment funding and a commitment to maintain Landmark as a full-service acute care hospital for a minimum of five years. That provision would require Prime to maintain an open and accessible emergency department and an independent medical staff during that period while also establishing a local governing board and assuming substantially all physician contracts, according to Schibler.

While Landmark has continued to rack up annual losses of $8.4 million in 2010, $10.4 million in 2011, and $10.8 million in 2012, according to his review, Schibler said Prime has seen positive income of $237 million, $155 million and $128 million during the same years from its operations. The company’s income level has declined in the most recent years, but that reflects its goal of investing in nonperforming hospitals and turning them around, Schibler explained.

“They take on hospitals such as Landmark that are losing money, and we have to give them time to improve their operations,” he said.
Prime would fund the acquisition through existing cash and an available line of credit of $175 million which can be used to fund acquisitions, Schibler said, and has also recently moved to raise another $250 million through a term loan that would become available in October. Prime has indicated that added borrowing would not be needed to the complete the Landmark deal, Schibler said.

Prime does have ongoing federal and state investigations of billing practices at some of its facilities, but those matters are closed to public review at this time and as a result would not affect his findings, Schibler said.

“As a result of my review, nothing has come to my attention that the transaction should not be approved,” Schibler said.

Baldelli-Hunt gave the only local testimony in support of the Landmark acquisition during Tuesday’s session, and echoed the appeal of other community members at earlier sessions while noting the importance of Landmark to Woonsocket and its neighbors.

“I come before you today to request that you take a strong consideration in approving the application for Landmark Medical Center to stay open and be a viable facility in the City of Woonsocket,” Baldelli-Hunt said.

“The people of the City of Woonsocket and the surrounding areas rely greatly on Landmark as a facility for them to fulfill their health care needs,” she said.

Woonsocket, Baldelli-Hunt said, has population made up of many elderly and low-income families.

“These families and these elderly do not have the means to get to other facilities through out the state. It’s critical that landmark remain open both for the population in Woonsocket and the surrounding area,” she said.

The hospital’s 1,200 employees also represent families, many who “live within our community and rely on their employment,” she said.

“We have a very unique municipality,” Baldelli-Hunt said. “We are an urban distressed community, but we have a great deal of residents who have a desire, who have spirit, who have the energy to turn our community around and I ask that you to take that into consideration as well,” she said.

After the vote, Almeida said that as a resident of Cumberland, she was aware of the hospital’s importance to Northern Rhode Island, and hoped her peers would share that view next Tuesday. “They have the fourth-busiest emergency room in Rhode Island and have 40,000 visits a year,” she said. “For many of their patients that is the only primary healthcare that they receive.”.

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