December 12, 2012

Mercy Hospital: Potential buyer wasn't misled

A memo tells a different story about how talks faltered between Mercy and a for-profit group.

By Kelley Bouchard kbouchard@pressherald.com
Staff Writer

PORTLAND — Executives of Mercy Health System of Maine deny that they misled the Massachusetts company that negotiated to buy the hospital group in Greater Portland before the talks ended abruptly on Friday.

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Mercy Hospital executives deny that they misled a Massachusetts company in negotiations to sell the hospital.

Mercy officials responded Tuesday to a report in The Boston Globe that said Steward Health Care System "unilaterally withdrew" from talks because the Catholic nonprofit organization misrepresented the condition of its finances and operations.

It's unclear how the Globe's report will affect Mercy's new effort to merge with nonprofit Eastern Maine Health Systems of Brewer, which was announced late Friday, soon after Mercy and Steward issued a brief statement that their negotiations had ended.

The Globe quoted a confidential memo sent Monday by Chris Murphy, Steward Health Care System's director of media relations, to presidents of 11 hospitals in the Boston-based chain owned by Cerebus Capital Management, a for-profit private equity firm.

Murphy's account of the separation of Mercy and Steward differs greatly from their joint statement, which said they terminated exclusive negotiations under a non-binding letter of intent because they "were unable to come to a definitive agreement."

In the memo, Murphy says Mercy's data on patient volume and trends proved to be much worse and construction costs for its new Fore River campus were far higher than Steward had been led to believe, the Globe reported late Monday.

Murphy also claims in the memo that Mercy's parent organization, Catholic Health East, withdrew $9 million in cash from the hospital after Steward signed a letter of intent in August to buy it.

"With each day that passed during the due diligence process, our confidence in the numbers presented by Mercy eroded to the point that we were unable to responsibly submit a bid," Murphy wrote in the memo obtained by the Globe. "We came to the conclusion that, even if Mercy were to give us their hospital for free, we couldn't make the numbers work."

Mercy spokeswoman Susan Rouillard disputed Murphy's characterization of Mercy's conduct during negotiations, which would have resulted in Maine's first for-profit hospital operation.

"Mercy has never misrepresented its finances or volume trends and we continue to maintain a normal business relationship with our parent, Catholic Health East," Rouillard said Tuesday. "We remain excited about pursuing a partnership under the letter of intent with Eastern Maine Healthcare Systems."

Rouillard said, "As a community-oriented organization, Mercy approaches all transactions in good faith and with full transparency. For those who know us, the Sisters of Mercy have long defined the values by which we operate in all matters."

Suzanne Spruce, spokeswoman for Eastern Maine Health Systems, told the Globe that the memo was a "Mercy-Steward issue."

Murphy declined to discuss the memo or his company's negotiations with Mercy. However, he confirmed to the Globe that he sent the document.

In the memo, Murphy complained that press coverage in Maine gave "the mistaken impression that Steward had lost a competitive bid," the Globe reported.

He blamed "Mercy's refusal to adhere to our jointly approved public messaging" and urged Steward executives to speak up if they heard contradictory information.

Mercy Health System of Maine and Eastern Maine Healthcare Systems have yet to file for a certificate of need from the state, said Phyllis Powell, assistant director of the Medical Facilities Unit in the Division of Licensing and Regulatory Services, part of the Maine Department of Health and Human Services.

Under state law, the division reviews hospital acquisitions to ensure availability of quality, cost-effective health care across Maine while trying to avoid excessive duplication of services and strike a balance between competition and regulation.

Mercy Health System of Maine has about 1,700 employees and operates two hospital campuses in Portland and nine primary care facilities across Greater Portland.

Eastern Maine Healthcare Systems has nearly 8,000 employees and operates seven hospitals in central, northern and coastal Maine, including Eastern Maine Medical Center in Bangor. It also operates a variety of ambulance companies, home health agencies, physician practices, long-term care and assisted-living facilities.

Eastern's pending takeover of Mercy has sparked widespread speculation about the potential impact on health care across Maine, which has 39 hospitals.

Some are relieved that Mercy ended negotiations with a for-profit company and is now negotiating with a nonprofit.

"Overall, I'd say the reaction has been pleasant surprise," said Gordon Smith, executive vice president of the Maine Medical Association, which represents 3,500 physicians, medical students and residents in training.

"It's basically a case of better the devil you know," Smith said. "To have an in-state solution to the financial situation at Mercy seems better than an out-of-state solution. Most people are more comfortable with the idea of health care being a nonprofit venture. It makes a difference when the operational margins are rolled back into the mission of the facility."

Mercy Health System of Maine started a strategic review more than a year ago, faced with a weak economy and pending health care reform.

It has made several rounds of layoffs in recent years, while the negative balance between revenues and expenses rose from $1.3 million in 2008 to $5 million in 2009 to $16.6 million in 2010, according to federal tax-exemption forms.

Joe Ditre, executive director of Consumers for Affordable Health Care in Maine, met with Mercy executives shortly after they announced the pending sale to Steward.

Ditre said Mercy officials shared his concerns about maintaining the cost, quality and mission to provide the personalized health care for which Mercy is known.

"That the sale didn't go through tells me that one of those things didn't measure up," Ditre said.

Before Murphy's memo came to light, Andy Coburn questioned whether Steward executives saw something they didn't like in Mercy's financials. Coburn is an associate dean and research professor at the Muskie School of Public Service at the University of Southern Maine.

"There's a long way to go for Eastern Maine Healthcare Systems to consider what it will mean for Mercy to become part of its organization," Coburn said.

Coburn also wondered whether Eastern, facing limited options for growth in northern Maine, has decided to grow into southern Maine and compete directly with Maine Medical Center in Portland, the largest hospital in the state and the largest member of the MaineHealth hospital group.

Maine Med executives are watching Mercy's actions, too, knowing that any developments might affect the delivery of health care in Greater Portland and across the state, said Richard Petersen, Maine Med's president and chief executive officer.

"We were surprised by this new development on the sale of Mercy Hospital to Eastern Maine Healthcare Systems," Petersen said in a written statement. "However, we suspected that Steward and Mercy would have challenges in reaching an agreement."

CORRECTION: This story was updated at 2:40 p.m. on Dec. 12, 2012, to reflect that the reporter mistakenly called and got no response from the spokesperson for Eastern Maine Medical Center, rather than the spokesperson for Eastern Maine Health Systems.

 

Staff Writer Kelley Bouchard can be contacted at 791-6328 or at: kbouchard@pressherald.com

 

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