The sale of Massachusetts' second largest hospital chain to a private equity firm is moving forward. The state’s public health council approved the deal Wednesday. During the hearing, Caritas Christi's CEO outlined a plan to turn the failing hospital system around.
Cerberus Capital Management plans to spend $895 million to pay off Caritas' debt, fund its pension plan and flood the system with cash. But what happens when the initial cash is spent? Will the six hospital chains, whose finances are in junk bond range now, find a way to make money?
Caritas CEO Ralph de la Torre has a plan. It begins with holding on to patients who come to Caritas hospitals in Norwood or Methuen or Brighton, for example, for primary care. Right now, 65 percent of patients head to the big downtown Boston hospitals when they need more than an office visit.
"We are here to reverse that tide," de la Torre says. "We realize that it’s our responsibility to provide the facilities, the personnel and the convenience needed to entice people to stay in their community for health care."
De la Torre figures that every percentage point of patients Caritas can recapture is worth millions of dollars for his network. And he says convincing patients his hospitals are just as good and cheaper than the major teaching hospitals will lower health care costs for everyone.
Changing The Landscape Of Mass. Health Care
"Without a fundamental shift in care back to lower cost community hospitals, it's not Steward that’s doomed, it’s Massachusetts that’s doomed," he says.
Steward is the name Caritas would operate under as a for-profit entity. The pending change is sending tremors across the state.
"The introduction of a well-funded private equity firm will dramatically change the ownership of the health care environment in Massachusetts forever," says Paul Levy, president and CEO at Beth Israel Deaconess Medical Center.
"If there’s real competition between two high-quality systems, there’s a better chance of holding down the costs."Jim Roosevelt, Tufts Health Plan CEO
Levy and other large hospitals are hearing from smaller hospitals that worry competition from Caritas will put them out of business.
"They are nervous. So I think you are going to see the largest single shift in ownership in Massachusetts hospitals over the next three years that you have ever seen," Levy says.
Beth Israel has affiliated with Lawrence General Hospital, for example, to offer cardiac services. Lawrence General is less than two miles from the Caritas' Holy Family Hospital in Methuen.
Hospitals that compete with Caritas say that with an infusion of cash the chain could buy up local physician practices and refer all their patients to the nearest Caritas hospital. There is also speculation about which failing hospitals Caritas may buy to expand its network and market power.
De la Torre shrugs at the suggestions.
"We’re not looking to do it; obviously if a hospital in need is there and it works out, fine, but we’d much rather, for example, Cape Cod just came to us," de la Torre says.
"They just joined our network and they’re going to share our infrastructure. We don’t need to acquire them."
A larger network would mean Caritas could manage a larger number of patients under new contracts with insurers that reward hospitals for keeping patients healthy.
More Competition, Better For Patients?
A big question is whether Caritas would eventually grow strong enough to challenge the state’s dominant hospital network.
"The infusion of capital could permit them to become a true competitor with the largest system in the state, which is Partners," says Tufts Health Plan CEO Jim Roosevelt.
"If there’s real competition between two high-quality systems, there’s a better chance of holding down the costs."
Roosevelt says there’s a danger that Caritas, in the transition to a for-profit, would focus too much on profits. State regulators expect to monitor the new entity’s decisions.
"The more competition in the marketplace, it’s better for the patients and better for the consumers, so that has been our general philosophy over the last few years," says Partners Chief Operating Officer Tom Glynn.
At Caritas, de la Torre acknowledges he’s taking a high stakes risk that depends in large part on what patients do. Will they keep going to Boston's big name hospitals? Or will millions of dollars in renovations, new technology and strong local doctors at lower costs persuade patients to stay at their Caritas hospital?
The marketing campaign is in the works while the sale of Caritas awaits two final steps, approval from the state’s highest court and a decision from the Catholic church.
This program aired on October 14, 2010.