The financial desperation of Landmark found a perfect fit with Steward, a private-equity-backed system that is heavily spending on deals, staffing and technology.
In the past year, Steward has acquired five hospitals in Massachusetts and considered a bid to buy the foundering Jackson Health in Florida. It is one of two for-profit systems the CMS Innovation Center selected to participate in the Pioneer accountable-care model and recently hired Drexel DeFord as chief information officer, luring the prominent health IT figure from Children's Hospital in Seattle.
The deal has yet to close, but most of the pieces are in place. The Rhode Island attorney general and health department conditionally approved the transaction in May.
In June, lawmakers passed legislation that amended the state's long-standing Hospital Conversions Act, which prohibited for-profit companies from acquiring more than one hospital in the state every three years.
Changing the law was a condition of Steward's agreement to buy Landmark.
The deal was put in jeopardy when Gov. Lincoln Chafee this month threatened to veto the legislation, although he later allowed the bill to become law without his signature.
A Steward spokesman, who declined to provide interviews with de la Torre or other executives for this story, said in an e-mail that the deal is expected to close at the end of July if the remaining conditions in the asset-purchase agreement are reached. A spokesman for Landmark's special master confirmed that negotiations on the remaining conditions are ongoing.
“We are happy that elected officials in Rhode Island amended the Hospital Conversion Act to eliminate the barrier to out-of-state investment in their healthcare system,” Steward said in a statement. “This change in legislation was not just about Steward. There are a number of financially distressed hospitals in Rhode Island that should have every option available to them as they look for different ways to access capital.”
Rhode Island lawmakers say they have considered amending the Hospital Conversions Act for years, but Steward's bid for the nearly bankrupt Landmark prompted immediate action.
A spokesman for Rhode Island Rep. Nicholas Mattiello, a Democrat, said Steward provided “significant input” on the bills, which were introduced in the General Assembly in January. He also said that Lifespan Corp., the state's largest health system, and other hospitals also provided input. “Times have changed and the law needed to be amended,” the spokesman said.
The legislation was introduced seven months after Steward and Landmark signed the asset-purchase agreement. Mattiello and Sen. Roger Picard, a Democrat who represents Woonsocket, sponsored the legislation.
Landmark had entered receivership in mid-2008. In the petition for special mastership, then-CEO Gary Gaube wrote that Landmark “has experienced a level of financial distress that is unique among Rhode Island hospitals and is the only Rhode Island hospital in a negative net asset position.”
For its fiscal 2008, the hospital reported $132.3 million in revenue, declining from $135.4 million the previous year, with an operating loss of $5.1 million.
More than two years passed before Caritas Christi emerged as a potential buyer. In the months before the system and Landmark announced their asset-purchase agreement, state lawmakers passed a law exempting Landmark and future owners, including for-profit companies, from paying sales and use tax for 12 years.
A spokesman for Landmark's special master told a newspaper at the time that Landmark could save about $735,000 a year as a result of the law.
State documents say there were several other entities interested in Landmark from 2008 to 2010, although none was disclosed.
Beth Israel Deaconess Medical Center, the Partners HealthCare System-affiliated Brigham and Women's Hospital, and Lifespan had all considered investing in Landmark, said Dr. Frank Sellke, a professor of cardiothoracic surgery at Brown University and a former chief of cardiothoracic surgery at Beth Israel.
However, the concern was that acquiring Landmark would be too expensive and involve too much risk, Sellke noted. De la Torre, during his time at Beth Israel—he was president and CEO of its Cardiovascular Institute—reportedly discussed his interest in Landmark.
“When he worked here, the current CEO of the Caritas Christi system would often look wistfully to the south and ask us to consider taking over the troubled Landmark Medical Center,” former Beth Israel CEO Paul Levy wrote in a July 2009 blog post. “We put the kibosh on that idea faster that you can say, 'State of Rhode Island and Providence Plantations.'”
When the deal between Caritas Christi and Landmark failed in 2010, other bidders emerged. RegionalCare Hospital Partners, a Brentwood, Tenn.-based for-profit health system, and Landmark announced they had signed a letter of intent in February 2011.
Other systems—all for-profit companies—to place bids included Capella Healthcare in Franklin, Tenn.; Prime Healthcare Services in Ontario, Calif.; and Transition Healthcare Co., also based in Franklin, Tenn. HealthSouth, based in Birmingham, Ala., offered to buy the rehabilitation hospital.
During bid hearings in April and May of last year, Caritas Christi, now Steward, again expressed interest to the special master that it wanted to return to the deal. The other systems withdrew their bids and Steward filed a petition with the court to approve an agreement with Landmark.