Plan for Carney under new deal: Up to $20m in capital investment

Caritas Carney Hospital will expand services and grow with up to $20 million in capital investments, and could eventually become part of a national network of hospitals, the head of the Caritas Christi system told the Reporter this week.

Caritas Christi, the Catholic hospital network that owns and operates the Carney and five other hospitals, is being acquired by a for-profit equity firm, New York-based Cerberus Capital Management.

The $830 million deal will infuse capital into the Caritas hospitals, including between $15 million and $20 million into Carney alone. The six-hospital system, which sees nearly one million annual patient visits, includes St. Elizabeth’s in Brighton, Saint Anne’s in Fall River, Holy Family Hospital in Methuen, Norwood Hospital, and Good Samaritan Medical Center in Brockton.

“I think this gives us better facilities, lets us expand our footprint, lets us become a wider-range organization in eastern Massachusetts, and that puts us in a better position to affect health care change,” Caritas CEO Ralph de la Torre said.

The move follows what de la Torre, the former chief of cardiac surgery at Beth Israel Deaconess Medical Center, has called a dramatic turnaround of the once-ailing organization since he took over in May 2008. His hiring came after a consulting firm hired by Attorney General Martha Coakley warned in a report that the system could not continue to sustain itself. The report also suggested that Carney should be converted into a mental health facility.

“I just think they didn’t get it right,” de la Torre said in a sit-down interview to discuss the Cerberus deal. “I mean I think that Carney has been successful. Sometimes, you just have to have faith in an institution. You have to look at its heart and have faith and say, ‘You know what? I think that it’s going to be successful if you make the investment.’ And that’s what we did with Carney. We looked at it, we looked at the heart of the institution, the people, the value to the community, and said, ‘You know what, if you make this investment, if we make the investment, it’ll be successful,’ and we were right.”

Previous attempts to sell the system have been unsuccessful.

Under the Cerberus deal, each hospital will have a “larger overall footprint,” de la Torre said. “In other words, Carney will offer more services, St. E’s will probably offer more services, Norwood, etc. They may not be the same mix of services they offer now because we’re still figuring it out. You know, health care changes all the time and some things may not be needed. For example, not a lot of polio hospitals are left, right? I think we have to make sure we continue to evolve so we can move services around to where they’re most needed.”

De la Torre said that he and his management team are staying on board, and the hospitals will continue to operate as Catholic health care facilities.

“Cerberus feels that basic integrated community health care is really the future of health care, as we do,” he said.
Asked about possible differences about operating as a for-profit hospital system instead of as a nonprofit, de la Torre said, “We’ll pay taxes. But short of that, our entire senior team on down stays completely unchanged. Our policies, our procedures, our commitment to free care, our commitment to community benefits stays completely unchanged.”

The deal has been hailed by local officials, including Mayor Thomas Menino, who noted the move brings St. Elizabeth’s and Carney onto city tax rolls at a time when Boston is still feeling the effects of a weak economy.

City Councillor At-Large Stephen Murphy said he expects the city to receive $6.8 million in taxes for St. Elizabeth’s and $2.4 million in taxes out of Carney Hospital. “I don’t see any problem with it,” he said of the deal. “It’s a win for Boston taxpayers.”

State Sen. Jack Hart (D-South Boston) agreed, saying the deal appeared to be a “huge win.” He added a single caveat: “It’s a Wall St. firm,” he said. “As long as they understand the mission of the Caritas Christi system and Carney Hospital, I’m happy with it.”

District 3 Councillor Maureen Feeney said the acquisition was a “bold move. I think it could be an incredible opportunity.”

Steve Poftak, research director at the Pioneer Institute, a local think tank, said he was surprised by a private equity firm picking up a hospital system, but called the deal a “good thing. “That’s probably a good thing for this market in the long run, to have another player with some market share,” he said. “There’s the potential for them to use the Caritas system as a platform to add on other hospitals.”

De la Torre said the Caritas system will be expanded to include other hospitals around the country. “I think the way you build a national network is not by buying eighty hospitals in seventy cities. It’s to buy a few regional centers. What you really want to form is a group of hospitals in an area that work together.”

De la Torre added: “It’s not about buying individual hospitals nationally, it’s about buying regionally integrated systems nationally. But the first step is right here. We’ve got to get this right, and nail this down before we move outside of Massachusetts for anything.”

The deal must still receive approvals from local regulatory agencies, and the change from a non-profit to a for-profit business will require Coakley’s approval. Cardinal O’Malley and officials with the Vatican must also sign off on the deal.

In a blog post online, O’Malley said the Cerberus-Caritas deal was one of the few options that a consulting group had presented to him in the past.

“One of the significant challenges for Caritas at this time is the pension fund that incurred significant losses with the decline of the stock market,” he wrote. “It has been a great concern for me that the employees not lose their pensions. At the same time we also wanted to modernize our hospitals, in order that they provide the best possible care for our patients. By way of an agreement with Cerberus, we will accomplish these goals and maintain the Catholic identity of our hospitals, fulfilling the mission of serving the poor and those in need while respecting Catholic medical ethics and the Gospel of Life.”

Caritas Carney employees will stay unionized, de la Torre said. “We’re big believers in keeping labor involved,” he said.
Veronica Turner, vice president of 1199 SEIU, the health care workers’ union that organized Carney employees in December 2009, said they will be closely reviewing the Cerberus-Caritas deal.
“From a jobs and care perspective, an investment ... in the system should be good news for Caritas workers and patients,” she said in a statement. “1199 SEIU members look forward to working with Caritas management to ensure our shared goal of delivering quality care to our communities remains at the forefront during this process.”

Lynn Nicholas, president and CEO of the Massachusetts Hospital Association, called Caritas a “significant and vital health care provider” in Massachusetts. “It is to everyone’s benefit that the system continue to thrive in service to a sizable patient population in our state,” she said in a statement. “Cerberus is certainly a new healthcare player in Massachusetts, yet it has a diverse and strong portfolio that can provide the necessary financial support to energize Caritas moving forward. Based on our experience, the investor-owned hospitals within Massachusetts are good stewards of the public health and are actively engaged in community benefits within the areas they serve.”