Massachusetts AG OKs Caritas Christi deal with provisions

Another hurdle has been cleared for the proposed sale of Caritas Christi Health Care to New York-based private equity firm Cerberus Capital Management, moving the Massachusetts-based six-hospital chain closer to for-profit status while preserving healthcare services and thousands of jobs.

Massachusetts Attorney General Martha Coakley told the Boston Globe on Wednesday that she would approve the $830 million deal with several provisions, including job and pension protection for the system’s 12,000 employees and assurances that the deal wouldn’t hurt healthcare services across eastern Massachusetts.

Because the deal would switch Caritas Christi from a non-profit to a for-profit system, it requires the approval of Coakley and the Supreme Judicial Court of Massachusetts, as well as the state Public Health Council, which must approve new licenses for hospitals. Coakley’s recommendation to the Supreme Judicial Court is seen by many as paving the way for the deal’s completion.

Boston Mayor Thomas M. Menino has said the deal, if approved, “gives Caritas an opportunity to continue its mission.” He estimated the conversion of the health network to a for-profit chain would add $7 million in real estate tax revenues annually.

First announced last winter, the deal would place six Massachusetts hospitals – the flagship St. Elizabeth’s Medical Center in Brighton, Carney Hospital in Dorchester, Norwood Hospital in Norwood, Good Samaritan Medical Center in Brockton, Holy Family Hospital in Methuen and Saint Anne’s Hospital in Fall River – under control of Steward Health Care Systems LLC, an affiliate of Carberus. Created in 1985, Caritas Christi is the state’s second largest hospital group.

“With the changes our office negotiated with Steward, we found that the transfer of assets will continue the vital services that these hospitals provide while protecting and creating jobs and preserving the pensions of 13,000 current and former Caritas employees,” said Coakley in an Oct. 6 press release. “After considerable negotiations with our office, we have ensured further protections to prevent Steward from closing or transferring these hospitals and extended the state’s ability to monitor Steward to five years. This will preserve access to healthcare for the residents who use these hospitals for important care and services.”

According to the press release, Coakley’s office spent five months in negotiations with Steward and reached several conditions for her approval of the deal. They include:

• Preservation of the jobs of approximately 12,000 Caritas Christi employees;
• Full funding of the pensions of approximately 13,000 current and former employees, amounting to roughly $260 million;
• Payment of roughly $475 million in existing debt (including pension liability) and the commitment of at least $400 million in capital improvements within four years – which is expected to create as many as 4,000 new jobs;
• The maintaining of current levels of indigent and charity care, community benefit expenditures and pastoral care and related services;
• The honoring of all commitments made by Caritas Christi to its donors.
• Assurances that Steward will not close or transfer ownership of any of the hospitals for three years, and that none of the hospitals be closed for the next two years after that provided certain financial performances are met and a robust public comment and reporting period has proceeded any closing during the extended period.
• Under the same time frame and conditions, assurances that Steward won’t reduce the number of inpatient psychiatric and detoxification beds in any of the system’s hospitals.
• The funding of and cooperation with a $1.5 million, five-year monitoring, assessment and evaluation conducted by the Attorney General and Department of Public Health on the impact of this transaction on healthcare costs and services in communities served by Caritas Christi.
• Giving the Attorney General direct authority to enforce all post-closing commitments placed upon Steward.

According to Coakley’s press release, an investigation by her office of the proposed sale indicated the health system would not be able to survive in its current form.

According to the Globe, along with flat Medicare rates, declining Medicaid payments and tough negotiations with private insurers, the health system is projecting healthcare insurance reimbursements to increase only 1.7 percent in the next few years, rather than the 3 percent to 4 percent that had been anticipated.

Negotiations between Caritas Christi and Steward had slowed during the summer when Caritas Christi officials determined the health system’s unfunded pension liability had grown by $45 million to $260 million, due to falling interest rates and the performance of the system’s investment portfolio. Health system officials had also warned that they would close two hospitals – St. Elizabeth’s and Carney Hospital – if the deal were to be scrapped.

According to the Globe, those familiar with the negotiations said Cerberus executives eventually decided the increase in financial commitment was necessary to satisfy regulators’ concerns about the deal.