As the health care industry turns… – Richard Asinof

by Richard Asinof, ConvergenceRI.com, contributing writer

A wealth extraction system run amok?

Has the health care industry in Rhode Island become a commodities market, immersed in a soap opera of private equity acquisition and consolidation? When happens when the patients say “Ouch?”

Under the proposed merger of Lifespan, Care New England, and Brown, the Warren Alpert Medical School and Brown Physician’s Inc. will become a major hub in the academic medical enterprise being created. In addition, Coastal Medical has been acquired by Lifespan, providing a missing component of primary care to that health system.

What a tumultuous week it was for health care delivery systems in Rhode Island, filled with the kind of choreographed plot twists and turns that might cause even the director of a reality TV game show to blush.

• With fanfare, on Monday, April 26, Care New England, Brown University and Lifespan officially filed their applications with the R.I. Department of Health and the R.I. Attorney General’s office under the Hospital Conversion Act to create a new academic medical empire. “The uniting of Lifespan and Care New England in partnership with Brown University will be the catalyst for care transformation in the state,” promised Dr. Tim Babineau, president and CEO of Lifespan, in the news release that framed the corporate narrative around the merger.

• That very same day, in what appeared to be an integral part of a coordinated public relations effort, the Rhode Island Foundation announced that it would seek to serve as an “independent” arbiter of community input about the merger, despite its ongoing advocacy for such a merger to occur.

“Our goal is to gather feedback and ideas from Rhode Islanders,” explained Neil Steinberg, president and CEO of the Rhode Island Foundation, in a news release. “We’ve worked with Lifespan and Care New England and have been supportive of the idea of a locally-controlled integrated academic health system for many years,” Steinberg said. “We’re pleased to see the formal merger process moving forward.” He added: “The community’s voice must remain an integral part of both the planning around and implementation of the merged entity.”

An impertinent question to ask, in the best tradition of Studs Terkel, is: Is it an appropriate role of the Rhode Island Foundation to play as the self-appointed coordinator of community input, even before the R.I. Department of Health and the R.I. Attorney General have begun their legally mandated analysis of the proposed merger under the Hospital Conversion Act?

Another impertinent question to ask: How can the Rhode Island Foundation be viewed as an “honest broker” in the process, given its advocacy of the merger? Or, should it be seen as an attempt to put its thumb on the scales to influence and control the narrative about the merger?

A further impertinent question: What conversations were held between the Rhode Island Foundation and the principals involved in the merger around the creation of such a coordinated effort around community input?

No question, the Rhode Island Foundation is currently playing an outsized role in helping to shape the future of health and education investments in the state. Indeed, the Foundation recently announced an effort to come up with a few good ideas about how the state should spend some $1 billion in federal funds from the American Rescue Plan.

Still, it is hard to fathom how the Rhode Island Foundation would ever put forth a narrative, based upon strong pushback from consumers, which would find the proposed merger fatally flawed, a consolidated enterprise based on an unsustainable business model that would inevitably lead to higher costs, poorer health options, and dramatically reduced options for patient care. To borrow a business cliché, it’s not in their DNA.

The next shoe drops
Some 24 hours later, the next shoe dropped in what appeared to be a sophisticated, coordinated public relations campaign:

• On Tuesday, April 27, Lifespan announced that it had acquired Coastal Medical, in essence buying a big part of what had been missing from its health care delivery system – a comprehensive primary care component. The news release announcing the move said as much: “Coastal is a national model for coordinated primary care, while Lifespan offers complementary strengths in specialty services, research, and education. Combining Lifespan’s vast specialty care capabilities with Coastal’s primary care expertise will benefit patients across the state, offering enhanced value through a continuum of coordinated, high-quality patient care.”

The messaging from Dr. Alan Kurose, the president and CEO of Coastal Medical, claimed that the acquisition of his physician’s group by Lifespan would be “good for Rhode Island, the people who live here, and the quality and cost of health care,” according to the news release. The consolidation, Kurose continued, would help “our practices and providers …reach more patients, with a positive impact on health care.”

Gears in the machine
Many patients served by Coastal Medical reported receiving emails announcing the acquisition, sparking a different narrative about the mergers and acquisitions in conversations on Twitter. Witness the blunt exchange between Matthew Billings, the project manager of the Children Youth Cabinet in Providence, and Peter Asen, the director of Strategy and Development at the Providence Housing Authority, which captured how some consumers were reacting to the new, consolidated world.

“We’re acknowledging the healthcare in RI is transitioning from a limited competition model to a full fucking monopoly, yes?” Billings tweeted, in response to the changes announced this past week involving the state’s health care delivery system.

Asen replied: “I started going years ago to a small practice of doctors called Hillside Family Medicine. A few years ago we found out that it was getting subsumed into Coastal Medical. Yesterday we got a message that Coastal is joining Lifespan. Next…”

Billings replied to Asen: I’m at Hillside, too, you referred them to me years ago, got the same email yesterday, like it was something to be excited about.”

Jordan Frank joined the Twitter conversation, suggesting: “Doctor friends indicate there’s a much better opportunity to improve quality and continuity of care, and to build specialty that competes with Boston hospitals. And don’t think this will impact costs to the worse. Bigger gears at play in that machine.”

Billings answered Frank: “I’m going to let the users of the monopoly have the final say on things like “quality,” rather than the monopoly telling us what to look forward to. Doctors execute the practice determined by the board & administrators to be the most profitable, they’re all gears in the machine.”

Disruptions in the force
Before detailing the next disruptions in the force that occurred last week around the health care delivery system in Rhode Island, it is important to provide readers with some historical context. The proposed merger between Care New England, Lifespan, and Brown University, combined with Lifespan’s acquisition of Coastal Medical, marked the latest episode in the saga of how the landscape of health care delivery system has been redrawn in Rhode Island during the last decade, marked by financial insolvency by community hospitals, hospital purchases by private equity firms, and corporate consolidation.

The disliked fact is that Rhode Island’s health care delivery system has already been carved up, colonized and consolidated. In the south, Yale New Haven now owns Westerly Hospital; in the north, now Prime Healthcare acquired Landmark Medical Center in Woonsocket. Both acquisitions occurred after the hospitals became insolvent and were overseen by court receivership proceedings.

Further, Memorial Hospital in Pawtucket, which had been purchased by Care New England in 2013, was forced to close its doors five years later in 2018, following huge annual operating losses in the tens of millions of dollars, which became an impediment to completing the then-planned merger between Care New England and Partners Healthcare in Boston [now Mass General Brigham].

A pre-emptive PR campaign
The next big news splash about the health care delivery system in Rhode Island occurred on Thursday, April 29, in a pre-emptive public relations strike orchestrated by the for-profit, private equity owners of CharterCare, owners of Roger Williams Medical Center and Fatima Hospital, claiming that the hospitals would be forced to close if R.I. Attorney General Peter Neronha imposed financial conditions on the pending sale of CharterCARE, which were due to be announced on Friday, April 30.

The PR campaign had the desired effect; much of the Rhode Island news media took the bait and run sensational headlines about the threat to close the two hospitals. Then, as if right on cue, CharterCARE announced early Friday morning that it was withdrawing its application for the proposed sale, attempting to make the conditions imposed by R.I. Attorney General moot. The entire matter is now under discussion before R.I. Superior Court Judge Brian Stern.

Here is a précis about what happened: in 2014, CharterCARE was sold to Prospect Medical Holdings, a for-profit firm in California, one of 17 health systems purchased by Prospect. Now, seven years later, the controlling private equity firm in Prospect Medical, Leonard Green & Partners, was seeking to sell its roughly 60 percent ownership stake back to Prospect’s CEO, Sam Lee, and his partner, having awarded itself tens of millions of dollars in dividend payments in that time. The R.I. Attorney General, having conducted an independent financial analysis of the transaction, as part of due diligence under the Hospital Conversion Act, questioned the financial stability of the health system as a result of the transaction, and was seeking that approval of the sale would be conditioned on the creation of escrow accounts to preserve the future financial viability of the state’s third largest health system.

On Friday, following the calculated moves by CharterCARE to capture the headlines, R.I. Attorney General Peter Neronha issued a statement defending his actions, one worth quoting at length, in part because that part of the story had been lacking in much of the other coverage by the news media:

“As a regulator with the immense responsibility of reviewing business transactions involving hospitals in our state, this office must contemplate outcomes that safeguard the delivery of quality, accessible, and affordable healthcare for all Rhode Islanders. I take that responsibility – and potential impacts on healthcare delivery in our state – seriously.

Assurances from those entrusted with elements of our health care system, upon which Rhode Islanders so critically rely, cannot be taken on faith alone. The ability and commitment to stand behind those assurances must be verified by this office. To do otherwise would be to abandon our mission, and correspondingly the people of this state.

Our robust review of the proposed transaction revealed a national company whose principals and investors extracted hundreds of millions of dollars from the hospitals and services they own. As a result, the company now faces risks to its financial viability which is required to respond to challenges that may arise in a volatile healthcare market, potentially putting every hospital in its system – including our Rhode Island hospitals – at risk of a reduction in services, sale or closure.

The people of Rhode Island deserve the truth. It is a hard truth: that those who claimed to care about health care here in Rhode Island and around the country cared much more – orders of magnitude more – about lining their own pockets than about the people they purported to serve.

Now much is at risk. And the 60 percent majority owner of the hospitals, private equity firm Leonard Green & Partners, L.P., wanted to walk away with $12 million more in its pockets and absolved of billions of dollars in debt. This office, and Rhode Islanders generally, were being asked to rely on the assurances of the current minority owners and would-be new owners that all is well, and all will be well. I am not willing to take the risk that acceptance of such assurances, without more, requires.

The owners have always had a simple choice. They could move forward with the proposed change in ownership with these conditions, which are absolutely necessary to ensure the continued operation of these hospitals. Or they could maintain their current ownership structure. Let us be clear: there is nothing about this latter alternative that puts the hospitals in a worse financial condition. That is simply the status quo.

Ultimately it comes down to this. Under the proposed transaction, majority owner Leonard Green, having made its money at the expense of the financial health of the hospitals, now wants out. So be it. But that choice comes at a price: remedy the malady you have created.

You chose to get into health care. Act like you believe in it.

The battle over the proposed sale of CharterCARE puts on full frontal display the dark side of private equity financing of hospitals, which may prove to be not so much different than private equity financing of other institutions such as newspapers and nursing homes. The private equity firms, it appears, loot the liquidity of the purchased company and then depart, behaving much like a loan shark, leaving the corporate shell at great financial risk, unable to pay the vig, in ConvergenceRI’s opinion.

It also shows the renewed importance of the role that the R.I Attorney General plays in reviewing hospital mergers – and the lengths to which CharterCARE attempted to undercut and sabotage that role.

Editor’s Note: Part TWO examines the latest data on rising health care costs in Rhode Island.

To read full article: http://newsletter.convergenceri.com/stories/a-wealth-extraction-system-run-amok,6515

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Richard Asinof is the founder and editor of ConvergenceRI, an online subscription newsletter offering news and analysis at the convergence of health, science, technology and innovation in Rhode Island.