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FTC decision on Lifespan-CNE hospital merger expected by end of February

Business News

PROVIDENCE, R.I. (WPRI) — After flying below the radar for months, the proposed merger of Rhode Island’s two largest hospital groups has entered a crucial phase, with major decisions expected by the end of this winter.

“There’s light at the end of the tunnel,” Care New England President and CEO James Fanale said Tuesday during a conference call with bondholders.

Lifespan and CNE announced their merger proposal last February, arguing that by combining forces into an academic medical center affiliated with Brown University they can improve outcomes for patients and promote economic development in Rhode Island. Executives said the renewed talks were spurred in part by their collaboration to get through the pandemic.

A merged Lifespan-CNE system would dominate health care in Rhode Island, with an estimated 80% market share in hospital services. Multiple previous efforts to combine the two not-for-profit organizations have fallen apart since the 1990s, partly due to concerns over the power such a large entity would wield.

Much of the action around the merger right now is being driven out of Washington, where the Federal Trade Commission has spent months scrutinizing whether the deal would be anti-competitive.

“Right now we’re in the final regulatory phases, I would say,” Fanale said during the conference call. “The FTC has got a date at the end of February where they need to opine as to whether they will litigate to block the measure or will allow us to pass, and that’s the end of February.”

The deal also needs approval at the state level, where Attorney General Peter Neronha and the R.I. Department of Health must both sign off under the Hospital Conversions Act. They are currently in a 120-day review period, with a deadline of March 16 to decide whether to approve the transaction, reject it, or approve it with conditions.

Fanale said executives at the hospital groups are currently sitting for depositions with both the FTC and state regulators, a process he expects to wrap up by the end of next week.

Lifespan owns Rhode Island, Miriam, Newport and Bradley hospitals; Care New England owns Women & Infants, Kent and Butler. They employ more than 23,000 workers combined. Brown’s medical school has agreed to contribute $125 million toward the new entity as part of an affiliation agreement.

“Both of our systems require more resilience, and we complement one another,” he said. “What Lifespan provides in Providence we don’t provide — the same thing with the Women & Infants services. We think the story is strong, we think our proposal is strong. But it will be up to the regulators to make that decision.”

State regulators released a redacted version of the Lifespan-CNE merger application last week. They have scheduled virtual meetings to receive public comment on Jan. 20 at 5 p.m. and Jan. 26 at 3 p.m. Written comment is also being accepted through Feb. 1.

The bills for the transaction are piling up: CNE pegged its merger expenses at almost $9 million during the most recent fiscal year.

Also during the bondholders call, Fanale and his executive team recapped how Care New England’s finances have been affected by the pandemic. The No. 2 hospital system has been struggling to find its financial footing over the last decade, closing Memorial Hospital and repeatedly seeking out merger partners.

Care New England posted a $16 million operating profit during its 2021 fiscal year, which ended Sept. 30. But financial filings show the organization would have had a $61 million operating loss if not for state and federal COVID relief grants. The red ink would have been even bigger the prior year without relief money, at $90.5 million.

Joseph Iannoni, CNE’s chief financial officer, called the improved performance “a substantial pickup,” saying, “It’s better, but it’s still a problem. It just shows how much we depend right now on provider relief funds.”

Discussing the ongoing staffing shortage that has been straining local hospitals, Fanale cited multiple steps Care New England has taken to mitigate the situation, including extra pay and a newly created federal tax credit for employee retention.

One of CNE’s hospitals, Kent, has the second-busiest emergency department in the state, topped only by Lifespan’s Rhode Island Hospital. Fanale estimated that it costs three times more to employ a contract nurse than a regular staff nurse.

“We’ve been presented with some of the same issues our region and other hospitals across the country have,” he said.

Ted Nesi (tnesi@wpri.com) is a Target 12 investigative reporter and 12 News politics/business editor. He co-hosts Newsmakers and writes Nesi’s Notes on Saturdays. Connect with him on Twitter, Facebook, LinkedIn and Instagram

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