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Boston Capital

Steward still waiting to close R.I. medical center deal

Steward Health Care System turned heads when it managed to build a big system of hospitals across Massachusetts in no time flat.

Steward and its private equity owners assembled a network of 10 community hospitals in what passes for a blink of an eye in the pokey world of big health care. It moved like an Acela hurtling down the milk-train track and never felt so much as a bump.

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Then Steward struck a deal more than 18 months ago to acquire a hospital in Rhode Island, its first foray outside Massachusetts, and things changed. The process of adding Landmark Medical Center of Woonsocket to the Steward portfolio moved a lot slower and got much nastier.

It started this spring, when a report produced for Rhode Island regulators looked at Steward’s financial status and found the numbers alarming. Landmark itself has been in receivership for the past four years.

Tensions kept rising through the summer. Steward launched a print and broadcast ad campaign last month against Blue Cross & Blue Shield of Rhode Island, accusing it of trying to “pull the plug” on the destitute hospital because talks to renegotiate insurance contracts weren’t going well. Blue Cross went to the press to complain it was getting slimed by Steward and insisted few of its paying customers ever set foot in Landmark.

Rhode Island Attorney General Peter Kilmartin leaned on both sides to get them back to the table, and before long, Steward chief Ralph de la Torre was going all Curt Schilling on him.

OK, de la Torre didn’t exactly reprise Schilling’s parting shots aimed at the governor of Rhode Island after his failed gaming company incinerated $50 million in state loans (“dunce of epic proportions”).

But the Steward chief executive fired off a letter to Kilmartin on Aug. 8, telling the attorney general he was “uninformed,” “biased,” “grandstanding,” and guilty of “rewriting history.” The key message: Stop being a jerk.

De la Torre expressed those sentiments in a private letter. But that note and other correspondence related to the Steward-Blue Cross negotiations were leaked last week and showed up on the website of WPRI in Providence.

More recently, Steward and Blue Cross have started negotiating again and dialed back their public comments. A drop-dead date for a final agreement — originally May 31 and extended to Aug. 31 — has been pushed back again to Sept. 30 by Kilmartin.

The Steward experience in Rhode Island is remarkable because the company simply followed the business playbook it has used successfully since Day 1. It targets hospitals in financial trouble — often deep trouble — and offers to sink new money into buildings and other infrastructure. It soaks up old debts. It plays up the fact that Steward’s for-profit status turns charity institutions into local taxpayers.

In the case of Landmark, Steward points out that it has already sunk $7 million into a hospital it does not yet own. “We are the reason it’s still open,” says spokesman Chris Murphy.

Steward’s entire track record to date begs two important questions: How can this plan work financially and can de la Torre really grow his company into a much bigger business across the country?

The question about the long-term financial viability of the Steward business model — buying poorer hospitals that serve lots of poorer patients — is complicated and deserves its own column one day soon. I’ll be back.

The other question, about the company’s ability to export its business strategy into other states and regions, hasn’t seemed very challenging. Steward made it look so easy in Massachusetts.

One reason: De la Torre was operating in his own back yard at first. He created instant critical mass by engineering the sales of Caritas Christi Health Care System’s six Massachusetts hospitals from the inside as the organization’s chief executive. Steward executives operated around a market they knew well and Attorney General Martha Coakley kept giving their deals the green light.

Along the way, Steward looked at an opportunity to expand in Florida, but nothing came of it. Just last month, it signed a letter of intent to acquire a smaller, struggling community hospital in Maine.

Steward and Cerberus Capital Management, the investment firm that owns it, have much grander plans than that. But the bumpy experience in Rhode Island shows that a bundle of money isn’t always enough. It may not be as easy as it’s looked here.

Steven Syre is a Globe columnist. He can be reached at syre@globe.com.
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