PROVIDENCE, R.I. (WPRI) – Care New England, Rhode Island’s second-largest hospital chain, has confirmed it’s in private discussions about “strategic partnerships” with other organizations but says it’s not for sale.
Care New England executives delivered a briefing to investors on Feb. 25, and the slideshow they presented – marked “confidential” – was obtained by WPRI.com. It shows the nonprofit hospital group, whose flagship is Women and Infants, briefed them on potential “strategic partnerships” it’s exploring.
Strategic partnerships are sometimes a way for organizations to test the waters for a full-on merger. They can be “a great way for medical staffs to begin testing one another’s culture to see if something more can be aligned,” Dan Marino, CEO of the Chicago consulting firm Health Directions, told Becker’s Hospital Review in 2011.
May Kernan, a spokeswoman for Care New England, declined to provide specifics about the partnership discussions, though she all but ruled out the possibility that the talks could lead to Care New England ceasing to exist as an independent entity.
“We are not in financial distress, we are not for sale, we are not looking to cede control of our system, our hospitals or our agencies,” Kernan told WPRI.com.
“We have no specific comment on particular entities with whom we are in confidential discussion, but should any of these discussions result in a closer partnership or affiliation, we would continue our practice of making a public announcement at the appropriate time,” she said.
Care New England is a central player in Rhode Island’s health care system. In addition to Women & Infants, the group owns Butler Hospital, Kent County Memorial Hospital and, since 2013, Memorial Hospital. It employed 8,063 workers as of Sept. 30, making it one of Rhode Island’s largest employers, and booked $1 billion in revenue during its last fiscal year.
Care New England previously attempted a merger with Lifespan, the nonprofit giant that owns Rhode Island Hospital, but that deal was scrapped in 2010 after hitting regulatory hurdles. Shortly before he left office, former Gov. Lincoln Chafee said one of his biggest regrets was failing to convince the two groups to renew their merger talks, citing what he witnessed on a trip to the thriving University of Pittsburgh Medical Center.
“I came back from those trips and [thought], we’ve got to get Lifespan and Care New England, our two big health care providers, down the aisle, get married, exchange your vows, and why not join forces instead of competing?” Chafee said on WPRI 12’s Newsmakers in December.
Chafee said he could “absolutely” see the two organizations making a second attempt to merge at some point. “It just makes sense to me, instead of them competing in this small state, to join together and join forces,” he said.
Kernan said Care New England CEO Dennis Keefe, who took the helm the year after the Lifespan merger collapsed, is pursuing “an orchestrated series of strategic initiatives” to position the hospital group to deal with changes in the health care industry.
“To achieve all of these goals without costly duplication of service, we have made strategic affiliations and partnerships an underpinning of our approach,” she said.
Those include Care New England’s takeover of Memorial in Pawtucket and its affiliation agreements with the Providence Center mental-health group and the Rhode Island Primary Care Physicians Corp., as well as the long-term strategic partnership deal it struck with Blue Cross & Blue Shield of Rhode Island in 2012, she said.
“We will continue to explore possible affiliation and partnership options for the future of Care New England,” Kernan said. “Despite the difficulty of the financial environment, particularly here in Rhode Island, Care New England has a strong record of financial performance – and we expect that to continue into the future.”
Kaufman, Hall & Associates, a major Illinois-based health-finance consulting firm, is serving as a strategic advisor to Care New England.
One of the big national credit-rating firms, Standard & Poor’s Ratings Service, lowered its outlook for Care New England last November from stable to negative, citing ongoing challenges including the level of competition it faces in the region, difficulties in digesting the Memorial acquisition, and weak cash flow.
“The negative outlook reflects our view of CNE’s uneven financial operating performance in recent years, including volume and patient revenue well below budget,” S&P analyst Jennifer Soule said in a statement. However, her analysis projected that the organization “will remain profitable from an operating perspective” over the next two years.
Care New England posted an operating profit of $8.5 million, a margin of less than 1%, in its 2013-14 fiscal year. That was down from $17.6 million the prior year. Its long-term debt totaled $157.8 million on Sept. 30, up from $110.3 million a year earlier.
Meanwhile, Care New England is also facing the potential of a reduction in the money it gets from Rhode Island’s multibillion-dollar Medicaid program, which accounted for 24% of Care New England’s $1 billion in patient revenue during fiscal 2013-14.
CEO Dennis Keefe is currently serving as co-chair of a working group convened by Gov. Gina Raimondo to identify roughly $90 million in Medicaid cuts to be added to her proposed budget; its recommendations are due April 30. It’s unclear how much of the cost cuts will impact the state’s hospitals.Ted Nesi (email@example.com) covers politics and the economy for WPRI.com and writes the Nesi’s Notes blog. Follow him on Twitter: @tednesi