Prime Healthcare Services, a for-profit California hospital chain, gained court approval Oct. 9 for an asset purchase agreement to buy Landmark Medical Center in Woonsocket. The acquisition came after Massachusetts-based Steward Health Care System pulled out of an agreement to buy the struggling independent hospital, underscoring a national trend of hospital consolidation.
The hospital has been in receivership since June 2008 under the authority of the state courts.
"The receivership process has allowed us to find efficiencies and negotiate savings," said Landmark spokesman Bill Fisher. "We've had a long and winding road as we try to find a purchaser."
Fisher attributed the hospital's poor financial situation to a "long period of under-reimbursement by insurers."
Landmark receives only 78 percent of the state average reimbursement rate due in part to its patient demographics, which include large numbers of elderly and low-income individuals covered by Medicare and Medicaid. These federally funded health insurance programs reimburse hospitals at a lower rate than private insurers.
Landmark provides $7 million in uncompensated care and services 45,000 emergency room visits each year, Fisher said.
"It's a critical community asset that needs to be preserved," Fisher said. "That's the goal of the receivership process - to preserve our assets for the long term."
Steward, also a for-profit hospital chain, pulled out of the purchase amid a failure to come to a satisfactory agreement with Blue Cross and Blue Shield, Rhode Island's largest insurer.
"Despite support from many of Rhode Island's elected officials, regulators, unions and communities, a number of private health care entities are not in support of Steward's model of integrated community care," according to a statement released by Steward following the fallout.
Chris Murphy, director of media relations at Steward Health Care, declined to comment further.
Prime saw an opportunity to make the purchase when Steward withdrew, said Edward Barrera, communications director for Prime Healthcare.
Expanding from its base of 14 hospitals in California, Prime recently purchased six additional hospitals spread across Nevada, Pennsylvania and Texas, Barrera said.
Prime sees potential "to improve outcomes and financially stabilize the hospital," Barrera said. Though there is no "cookie-cutter" model for hospital restructuring, Barrera said Prime will likely increase investment in medical technology, an area where hospitals facing financial hardships tend to underinvest.
Prime pledges to invest $6 million in Landmark over five years, provide $3 million in bridge financing and maintain the current level of charity care, Barrera said in a Sept. 28 press release.
Under Rhode Island's Hospital Conversion Act, both the state attorney general and the Department of Health must approve hospital mergers. The deal between Landmark and Prime still awaits the green light from regulators, which Barrera estimated will happen by May 2013.
In the weeks prior to the Prime deal, Landmark also reached an agreement with Blue Cross that will allow patients covered by the health plan to continue to receive care at the hospital.
In Rhode Island, "Blue Cross dominates the commercial insurance market," said Ira Wilson, professor of health services, policy and practice. "Anyone who wants to participate in commercial insurance needs to have a contract with Blue Cross."
As each hospital or hospital system negotiates separate contracts with insurers and the terms of each contract remain secret, reimbursement rates vary significantly between hospitals. Due to its status as an independent community hospital, Landmark has difficulty bargaining for favorable terms in a contract, Wilson said.
He added that it is probable that differences between Prime's and Steward's business models allow Prime to accept a lower reimbursement rate while remaining profitable.
"As the leading health insurer in Rhode Island, Blue Cross continues our commitment to working collaboratively with all stakeholders to improve the health of our community. We believe there is no more important work than ensuring the integrity and sustainability of our state's health care delivery systems," according to a statement released by Blue Cross.
The passage of the President Obama's health care reform legislation acted as another catalyst for hospital consolidation and has endorsed a shift away from "fee-for-service" payments for health care, Wilson said. Instead, "you give a delivery system a fixed amount of money, and say, 'You deliver this amount of service for this amount of money.'" Wilson said the Landmark deal is indicative of a larger trend toward hospital consolidation.
"There are benefits for hospitals and physicians to be a part of a larger network for this to work," he said.
While pointing to the important role of Landmark as a hospital and employer in northern Rhode Island, Dean of Medicine and Biological Sciences Edward Wing expressed concerns about the hospital being purchased by a for-profit company.
"All of Brown's teaching hospitals are not-for-profits, as opposed to Prime," Wing said. "For-profits do not perform research and do not tend to train medical students and residents - that's a big difference between the two types of systems."
