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Many watching as Caritas talks with R.I. hospital (MS)

The financially strapped Caritas Christi Health Care hospital system is negotiating to buy the Landmark Medical Center, a 214-bed community hospital in Woonsocket, R.I., that has been in court-appointed receivership for a year. Massachusetts and Rhode Island regulators say they will take a hard look at the potential merger.

Caritas Christi’s board has authorized its management to move forward with negotiations, according to three healthcare industry professionals who have been consulted about the prospective deal.

Officials at Caritas Christi and Landmark declined to confirm that a deal is close. “We have looked at Landmark Medical Center, as many others have, and have not yet decided whether we are interested in pursuing a relationship with them,’’ said Caritas Christi spokeswoman Teresa Prego. A merger would require Landmark to become a Catholic hospital.

Although it is not known how Caritas Christi would finance a merger, the six-hospital chain is hoping to build “critical mass,’’ boosting its clout with insurers and bondholders, said the healthcare professionals, who declined to be named because they are not authorized to speak about the system’s finances.

By expanding, Caritas Christi also might become more attractive to a potential buyer. Two years ago, a tentative agreement for the chain to be bought by Ascension Health of St. Louis collapsed after Ascension uncovered major unfunded pension liabilities and other financial problems.

Whatever the motivation, any deal will get regulators’ attention.

“I can promise you that whether it’s Caritas or another potential buyer, we’re going to look at it very hard,’’ said Mike Healey, spokesman for Rhode Island Attorney General Patrick C. Lynch. “Landmark is an extremely important hospital. It serves the northern part of our state. Whatever happens, we want to make sure that Landmark remains an employer and community asset in Rhode Island.’’

Annemarie Beardsworth, spokeswoman for the Rhode Island Department of Health, said, “If we approve a merger, we want to make sure it’s a good decision. We don’t want to have a merger just to have a merger. We want to make sure there’s no disruption to patients, to the quality of clinical care. Finances are also a consideration.’’

The Caritas chain’s potential acquisition of Landmark also is being scrutinized by Thundermist Health Center, the largest primary healthcare provider in northern Rhode Island. Executives at Thundermist – which has contracts with Landmark for admitting, specialty referrals, and other services – are concerned about a new owner’s ability to provide financial stability, improve clinical care, and work with Thundermist doctors on healthcare reform.

In the case of Caritas Christi – which was founded by the Catholic Archdiocese of Boston and is New England’s second-largest hospital system – there is an additional concern: If Landmark converts to a Catholic hospital, Thundermist could no longer provide family planning services or sterilizations there. There is currently only one Catholic hospital in Rhode Island, Our Lady of Fatima Hospital, which is affiliated with the Diocese of Providence.

Bill Fischer, a spokesman for Landmark, would not say whether the 1,200-employee hospital has been in talks with Caritas Christi, but said officials hope to make an announcement in coming weeks. “We have been in negotiations with several potential partners over the past year,’’ Fischer said. “We are in negotiations with one entity in particular. We believe those negotiations are moving in a very positive direction. At this point, it would be premature for us to say who that party is.’’

For regulators, a key concern is the financial stability of hospitals that provide a wide range of medical services. Landmark, which had only about $7 million cash on hand in the spring of 2008, petitioned a Rhode Island superior court to place it under the umbrella of a special master, a form of receivership, to preserve its assets and keep operating until a buyer could be found.

Since then, Landmark has continued to meet its payroll, pay vendors, and provide care to patients in communities across northern Rhode Island – where it is the largest hospital – as well as some in southeastern Massachusetts. The hospital now has about $6.5 million in cash.

If the parties negotiate a letter of intent, a deal would still be subject to court approval. The parties also would have to apply for a hospital conversion from the state of Rhode Island, requiring approval by the attorney general’s office and the department of health. While regulators won’t start their review until a merger agreement is in place, they have been intently following negotiations.

The Massachusetts attorney general’s office also is monitoring the potential merger. Though the office would not play a formal role in the approval process, it could challenge a deal in court if it foresaw an adverse impact on Caritas Christi’s financial health.

“We remain very interested in the future of Caritas Christi and look forward to learning more from Caritas if it intends to move forward on a partnership with Landmark,’’ said Melissa Karpinsky, spokeswoman for Attorney General Martha Coakley.

Caritas Christi has been cutting costs and working to stabilize its financial footing since Ralph de la Torre took over as chief executive in April 2008. But while the system has positive cash flow, healthcare industry observers say it lacks the capital to address mounting needs for buildings and equipment at its hospitals across Eastern Massachusetts.

In its most recent financial report filed with Coakley’s office, which regulates nonprofit hospitals, Caritas Christi posted its excess of revenue over expenses as $20.7 million for the fiscal year ended Sept. 30, 2007. It received an extension for its 2008 financial filing, which is now scheduled for Aug. 15.

But Maria Montanaro, president of Thundermist, said finances are only one worry. Montanaro said she wants to make sure any potential buyer can address Landmark’s “clinical weaknesses’’ in areas such as obstetrics, radiology, and surgical services.

She also wants the buyer to work with her organization’s physicians on improving care and lowering healthcare costs at the hospital.

While the hospital doesn’t perform abortions, Thundermist does offer family planning and sterilization at Landmark and would have to find other relationships to continue providing those services if the hospital is acquired by Caritas Christi, Montanaro said. Such services are barred by the ethical and religious directives of the US Conference of Catholic Bishops. The change would be a “secondary consideration’’ in a sale of the hospital to Caritas Christi, she said.

“Thundermist is keenly aware of its responsibility to form both an opinion and a collaboration with any party that seeks to acquire Landmark hospital,’’ Montanaro said. “We take that responsibility seriously. And we hope to come to a decision with regard to Caritas in the next few weeks.’’

Michael Paulson of the Globe staff contributed to this report. Robert Weisman can be reached at