Deal Flow

Prime seeks to turn Landmark into a nonprofit

In a Dec. 31, 2016, filing with R.I. Department of Health, exactly three years to the day after buying Landmark, Prime Healthcare, the parent for-profit health system, announced plans to “donate” the hospital and its sister facility, the Rehabilitation Hospital of Rhode Island, to a not-for-profit foundation run by Prime founder and chair, Dr. Prem Reddy, and his family

By Richard Asinof
Posted 1/23/17
The move by Prime Healthcare to transfer ownership of the for-profit Landmark Medical Center to its not-for-profit foundation is consistent with the health system’s strategy. What it means in terms of future tax revenues for Woonsocket remains a big question.
How will state regulators respond to the requested change in ownership status of Landmark, moving from a for-profit to not-for-profit status? Does new legislation need to be written? How will the future use of property owned by health systems seeking to be repurposed be determined? What role will the community play in the decision-making? When will Gov. Gina Raimondo and her economic team begin to draft plans to address the economic tsunami that threatens to overwhelm Rhode Island as a result of the earthquake caused by the repeal of the Affordable Care Act? What will be the legislative response? Who will step forward? Will it be Rep. Aaron Regunberg and Sen. Gayle Goldin? How will this economic threat change the priorities of House Speaker Nicholas Mattiello around taxation? How can the future consolidation of the Rhode Island’s health care industry sector become something more than a lawyers’ full employment act? How can citizens and communities become participants in the decision-making?
The millions of women and men who marched on Jan. 21 – in Washington, D.C., and in cities across the U.S., including Providence, and the world – in protest against the Trump presidency represent a new kind of engaged community, one that is ready to flex its muscles in how it translates that new-found voice into strategic action and electoral politics.
In future health care policies, the women marchers represent a potent counter force to Congressional Republicans and the Trump administration's efforts to roll back legal protections enabling women to make decisions about their own bodies.
Attempts to ignore them or pretend they don’t exist as a new political force will only strengthen their determination to make changes in the nation's electoral politics.
Witness the failure by Sean Spicer, Trump’s new press spokesman, in his first official briefing, to acknowledge the size of the Jan. 21 demonstration in Washington, D.C., and instead, attempt to paint the news media coverage of the Trump inauguration as inaccurate. He and the Trump administration have some explaining to do.

WOONSOCKET – Three years ago, on Dec. 31, 2013, the deal to sell Landmark Medical Center and the Rehabilitation Hospital of Rhode Island to Prime Healthcare Services, a for profit health system headquartered in California, was finally consummated.

Now, three years later, Prime Healthcare Services wants to transfer ownership of the two facilities by donating them to the Prime Healthcare Foundation. The application was filed under the Change in Effective Control Application on Dec. 31, 2016, with the R.I. Department of Health. [See link below.]

The valuation of the two hospitals for tax purposes is some $77 million, according to the application documents.

The application states, up front, that the conversion to nonprofit status “will have no effect on the hospital operations and all services will be continued.”

But the transfer of ownership to the nonprofit entity may have a significant impact on the future real estate taxes paid to Woonsocket and North Smithfield on Prime’s holdings, including 16 properties and offices in addition to the hospitals.

Will the city of Woonsocket seek additional PILOT, or payment in lieu of taxes contributions, to make up the gap? Good question.

The change from for-profit to not-for-profit status may also present some unique regulatory challenges for Rhode Island: it is the first time that a for-profit hospital has sought to convert to a not-for-profit entity, plowing new legal ground.

Who gets what, when and how
The move comes at a time when the health care industry sector and, in particular, hospitals in Rhode Island, are struggling to keep revenues in the black. The renewed attempt by Lifespan to build a competing, $43 million obstetrics facility a few hundred yards away from Women & Infants Hospital speaks to the current cutthroat world of competition and consolidation – without apparent clear financial benefits for the patients, as opposed to the financial health of Lifespan. [See link to ConvergenceRI story below.]

The promised repeal of Obamacare by Congress, and the executive order signed by President Donald Trump as one of his first acts in office, seeking to undo the regulatory authority of the law, threaten the flow of federal dollars to hospitals from the national health insurance plans, Medicare and Medicaid. Here in Rhode Island, studies put that loss of funds at some $1.7 billion over the next decade.

Further, in Rhode Island, the future is also bleak when it comes to the state budget: Gov. Gina Raimondo’s proposed budget for FY 2018 seeks to freeze rates as well as reduce payments to hospitals and nursing homes. Worse, there is no apparent planning underway by Raimondo and her economic team to deal with the projected potential loss of more than 10,000 jobs in Rhode Island in the next two years as a result of the gutting of Obamacare, according to one study. Can you spell denial?

If your memory serves you well
In his book, Harvey Wasserman’s History of the United States, published in 1973, with an introduction by Howard Zinn, Wasserman’s jarring first sentence reads: “The Civil War made a few businessmen very rich.”

Among the rich businessmen in the North who bought their way out, Wasserman continued, paying $300 for a deferment, were J. Pierpont Morgan, John D. Rockefeller, Andrew Carnegie, James Mellon, Philip Armour and Jay Gould.

In similar fashion, it could be written by future historians that the bankruptcy of Landmark Medical Center, which lasted five-and-a-half years, longer than the U.S. Civil War, from June of 2008 until December of 2013, enriched any number of Rhode Island lawyers and law firms.

Court hearings were often jam-packed with dozens of attorneys representing the various entities – including health systems, potential buyers, health insurers, and unions.

The deal to sell Landmark to Prime ended a saga that bore much resemblance to the twists and turns of the plot from a long-running soap opera on daytime TV: during its more than five years in receivership, Landmark went through a number of potential buyers who jilted the health system at the altar, including Caritas and Steward Health Care, before Prime finally agreed to buy the Woonsocket hospital and its sister facility, the Rehabilitation Hospital of Rhode Island, just down the road in North Smithfield.

ConvergenceRI covered many of the “episodes” between 2010 and 2013: the frequent hearings before Judge Michael Silverstein in Superior Court, packed with lawyers; a public hearing at City Hall in Woonsocket, packed with residents; and hearings before committees at the R.I. General Assembly, often packed with lobbyists.

For the record, Prime Healthcare is a for-profit hospital system with its headquarters in Ontario, Calif., running 44 hospitals in 14 states. Twelve of those hospitals are now part of the Prime Healthcare Foundation, having been donated to the foundation by Reddy and his family, according to the health system’s website. Both entities are incorporated in Delaware.

It has been Prime’s modus operandi to buy distressed hospitals and then improve their financial stability, often by pumping up the volume on medical imaging, and then donating the for-profit hospital to a not-for-profit foundation, all perfectly legal strategies.

The transfer of Landmark from for-profit to not-for-profit status should not be a surprise to any reporters or regulators. It has been well documented.

Not funny
Two distinct memories stand out from those four years of reporting on the saga of Landmark:

Dr. Prem Reddy, the founder and chair of Prime, jabbed his finger repeatedly, coming very close to touching the face of former Providence Journal reporter Felice Freyer, lecturing her in the aftermath of a July 9, 2013, hearing held by the Health Services Council in the basement of the R.I. Department of Health.

Reddy was attacking Blue Cross & Blue Shield of Rhode Island, in response to a question by Freyer. “If you’re a Blue Cross member, you’re already paying through your nose,” Reddy said, adding a kind of “heh heh heh” as a nervous interjection of laughter. “Where is that premium going that your are paying? It’s going into big buildings, into huge millions for salaries.” Heh heh heh.

Having Blue Cross pay more in reimbursements for Landmark, he continued, “It’s not going to increase your premium. It’s going to decrease the luxury and [decrease] the pay off to executives,” Reddy said. Heh heh heh.

Riding in the State House elevator after leaving a hearing, squeezed in with Bill Fischer, then a spokesman for the law firm appointed to represent Landmark in the bankruptcy proceedings, along with two lobbyists for Steward Health Care.

It was a short but uncomfortable ride. At the hearing, Steward was seeking to push through legislation that would have changed the three-year waiting period required for for-profit hospitals hospitals to acquire additional nonprofit hospitals in Rhode Island.

It appeared to be part of a strategy being pursued by Steward, then the prime suitor to acquire Landmark, to seek to buy other distressed hospitals in the Rhode Island market.

In advance of the hearing, the two lobbyists declined to answer my questions, referring me instead to Steward spokesman Christopher Murphy, who, in turn, said he couldn’t answer any questions, because he said he was “unaware” of the two lobbyists’ activities.

They all had chuckled, once again, with a heh heh heh, sounding a bit like comedian Jon Stewart imitating President George W. Bush.

Future train wreck?
In the coming months, the R.I. Department of Health will be forced to wrestle with decisions about the future needs of the state’s health care system, without having a statewide health care planning document in place to serve as the benchmark for how best to make those decisions.

As reported by ConvergenceRI in previous editions, the music has been cued for the next wave of “musical chairs” in the consolidation among hospital systems in Rhode Island. [See links to ConvergenceRI stories below.]

To survive, Care New England needs to staunch the loss of money at Memorial Hospital and repurpose the building. What is needed is a robust discussion, involving community groups, about what could happen at Memorial.

The recent mention by Lifespan President and CEO Dr. Timothy Babineau that he would be interested in pursuing a potential merger with Care New England, as reported by The Providence Journal, would represent a major change of heart, given his apparent previous lack of interest in a number of merger attempts, including those brokered by former Gov. Lincoln Chafee and more recently by Gov. Gina Raimondo during her first year in office, according to sources.

More likely, perhaps, is an alignment by Care New England with the parent company of CharterCARE, Prospect Medical, the California-based firm, given its activities to acquire hospitals in Connecticut.

Once again, the potential model of community health stations, such as the one in Scituate and the other in Central Falls, offers a more nimble approach to health care delivery, focused on community needs rather than the financial needs of health systems and providers.

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