Hospital sale talks pushed back

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June 21, 2011

Hospital sale talks pushed back

By Richard Gaines Staff Writer The Gloucester Daily Times Tue Jun 21, 2011, 11:44 PM EDT

Choosing from among four hospital companies seeking to acquire Northeast Health System is taking longer than expected.

And the target date for a decision has been pushed back from the end of June to September, Northeast said Tuesday.

"This is a significant undertaking; one requiring careful and thoughtful analysis," Northeast President and CEO Ken Hanover said in a email. "There is a tremendous amount of information to consider, and review of this information and the ensuing discussions are requiring more time. Therefore, we expect the review process to continue through the summer and a decision to be reached by September."

Hanover has previously said investment capital for "information, clinical and medical technology" had convinced the trustees to find a merger partner. In early May, he pushed the first due date for a decision from the end of May to late June.

The suitors, however, have not changed, according to Northeast.

They include two nonprofits — Beth Israel Deaconess, a Boston-based teaching hospital system with a global profile, and the smaller, Burlington-based but equally prestigious Lahey Clinic.

Each has clinical links to Northeast, which is the financially healthiest system in Massachusetts to seek a larger partner for an acquisition-merger in the current wave of consolidations.

There are also two for-profit hospital systems in the mix — Massachusetts-based Steward Health System, and Nashville-based Vanguard Health Care.

Steward was formed by Cerberus Capital Management last year to acquire the six Caritas hospitals from the Archdiocese of Boston for $895 million. In the acquisition, Cerberus put the corporate leadership of the aged but highly respected Catholic hospitals in charge of the chain as it experienced investment from the equity investing parent company.

Since then, Steward has continued to expand its network, acquiring Merrimack Valley Hospital in Haverhill, and Nashoba Valley Hospital in Ayer. It is in the process of adding Landmark Medical Center in Woonsocket, R.I.

All were in a weakened financial state when taken from non-profit to for profit status, but Steward and Vanguard, which has acquired MetroWest Medical Center in Framingham and St. Vincent's in Worcester, both have accepted and incorporated the pre-existing unions with little fuss.

Vanguard has built its national network primarily in Michigan as well Arizona, Illinois and Texas.

The nonprofits, Beth Israel Deaconess and Lahey, have not been unionized, while Northeast has an active nurses' union which held an informational picketing exercise last week.

Northeast would be the first major acquisition for either Beth Israel Deaconess or Lahey.

With assets of more than $400 million — notably Beverly and Addison Gilbert Hospitals as well as an outpatient facility in Danvers — stable, steady growth and a desirable fiefdom in Eastern Essex County, Northeast is a most desirable for corporate auction as medical centers strive to achieve primary service to 1 million people as "Obama Care" phases in, according to hospital officials interviewed by the Times in recent weeks.

By September, the Northeast Board of Trustees, according to the new timetable, expects to have decided on the best affiliation — a choice between four ardent suitors for the strongest Massachusetts health and hospital system to seek consolidation into a larger merged entity during the current wave of mergers.

After the choice is made, Hanover will brief the communities affected by the anticipated merger — here, the Cape Ann component parts that are served by Gloucester's Addison Gilbert Hospital and Beverly Hospital — and return to the trustees with comment and ideas before the onset of final negotiations leading to contractual agreement, or not.

Depending on the corporate structure of the partner, the deal would then either go through a largely pro forma review by the state Department of Public Health should Northeast choose to remain nonprofit, or it would undergo intense review and potential alteration by the Office of the Attorney General, Martha Coakley, before the deal is sent for review and approval by the Supreme Judicial Court.

The state raises the bar of scrutiny for losses by the nonprofit charitable sector to the less transparent for-profits.

The parsing of the offers, the evaluation of the "final" proposals and preliminary recommendation of a merger partner to the full Board of Trustees is delegated to an "affiliation advisory committee" whose members' identities are being kept from the public, a Northeast spokeswoman told the Times Tuesday.

Gloucester and the other Cape Ann towns are represented on the Board of Trustees.

The negotiating affiliation advisory committee is working with Cain Brothers, which describes itself as "an employee-owned investment banking and strategic advisory firm that focuses exclusively on the health care industry."

"The firm's client base is primarily composed of nonprofit and investor-owned health care service providers, managed care companies, medical technology companies, companies that provide services to the health care industry, such as information technology and real estate companies, and financial sponsors," according to the Cain Brothers website.

Richard Gaines can be reached at 978-283-7000, x3464, or at rgaines@gloucestertimes.com.