Care New England in talks to merge with Southcoast Health

Women & Infants, Charlton Memorial owners would combine under a new nonprofit

Care New England's Women & Infants Hospital, top, and Southcoast Health's Charlton Memorial.

PROVIDENCE, R.I. (WPRI) – Care New England Health System and Southcoast Health System Inc. revealed Monday they have begun exclusive merger talks, setting the stage for what would be a major shakeup in Southern New England’s health care landscape.

In a statement, the two hospital groups’ CEOs said they recently signed a letter of intent “to engage in exclusive discussions and to work toward the goal of forming a new not-for-profit parent organization that would oversee both systems,” though they cautioned that much work needs to be done to reach a final deal.

“We believe the complementary services of Southcoast and the geographic span of their service area will enable us to advance the high-quality, high-value continuum of care we have been building,” Care New England CEO Dennis Keefe said. His counterpart at Southcoast, Keith Hovan, described his group as “a strong and complementary partner for Care New England.”

Monday’s announcement came months after Care New England, Rhode Island’s second-largest hospital group and the parent of Women & Infants, confirmed it was exploring “strategic partnerships” with other health groups. The organization has faced financial challenges partly stemming from its 2013 acquisition of Memorial Hospital in Pawtucket. Its other hospitals are Butler and Kent.

A merger of Care New England and Southcoast would create one of the largest nonprofit health systems in New England, with eight hospitals, roughly $2 billion in annual revenue and more than 1,700 doctors and providers, according to the two groups. Care New England is also affiliated with Brown University’s medical school.

New Bedford-based Southcoast was created in 1996 through the merger of three community hospitals in Southeastern Massachusetts: Charlton Memorial in Fall River, St. Luke’s in New Bedford and Tobey in Wareham. Last week it announced a $5 million operating profit for the fiscal year that ended Sept. 30, compared with a loss of $30 million a year earlier.

Southcoast previously explored a possible Rhode Island merger with South County Hospital, but abandoned those talks last year.

New headquarters could be in Mass.

In an interview, Keefe said the Care New England and Southcoast boards have now set a 90-day deadline to conduct due diligence and develop a “definitive agreement” that outlines the terms of their partnership, after which they would seek approvals from state and federal regulators. He said the entire process could take six months to a year.

No decision has been made yet on the name of the proposed new organization or who will serve on its board of directors, though the plan is to have 10 board members from Care New England and 10 from Southcoast, Keefe said. The new board will choose the new CEO, and Keefe acknowledged he may not get the job.

It’s also possible the headquarters of the new parent organization will be in Massachusetts rather than Rhode Island, Keefe said, though he called the proposed deal “a combination of equals.”

On the jobs front, Keefe argued the merger could actually lead to more employment across the two organizations, particularly in primary care and population health management, rather than major downsizing.

“If we did something more locally with an organization that was more in our market, an overlapping market, there’d be significant job losses,” he said. “I think that’s an important part of the story in terms of job creation in Rhode Island, because we do not share a large market with Southcoast.”

In an email to his employees Monday, Southcoast CEO Hovan suggested his team was “invited” by Care New England’s leaders to express interest in a partnership. He said he hopes that by combining the two groups could “form the foundation of a highly competitive, community-based and value-driven integrated health care system throughout Southern New England.”

Lifespan, Partners were in the mix

Gov. Gina Raimondo – who just last month said she would like to see Care New England make a third attempt to merge with Rhode Island Hospital parent Lifespan, the state’s largest hospital group – reacted cautiously to the news, though she praised Keefe for his role in various health initiatives her administration has undertaken.

“I look forward to learning more about this proposed opportunity and its potential to foster innovation and strengthen communities across the region,” Raimondo said in a statement.

Lifespan CEO Tim Babineau declined to say whether he is concerned about the competitive potential of a merged Care New England-Southcoast group, which, combined with other changes in the Rhode Island hospital sector, are leaving his organization looking increasingly isolated.

“At the direction of our board, we have been involved in a number of ongoing strategic conversations over the last several months, including some with CNE,” Babineau said in a statement Monday. He added: “Lifespan will continue to explore other opportunities and potential partnerships that will continue to advance our system as the preeminent academic health care system in our region.”

Keefe refused to provide any specific details about why Care New England’s executives weren’t interested in Lifespan, but said: “Across the board, everything we were looking for in a partnership – including an equal partnership – was most highly met by Southcoast, and for whatever reason was not met by the other organizations in the process.” He also said the board was cognizant of “the likelihood of any particular affiliation getting through the regulatory process.”

Southcoast and Lifespan were two of four potential partners vetted by the Care New England board, according to Keefe. He said the other two were Boston-based Partners HealthCare, which owns Mass General and Brigham and Women’s, and Los Angeles-based Prospect Medical Holdings, whose Rhode Island division CharterCARE Health Partners owns Roger Williams Medical Center.

‘Financial challenges’ at Care New England

Keefe insisted that cash concerns at Care New England were not the driving force behind its decision to shop itself around, although he acknowledged his organization faces “financial challenges,” which he blamed on state regulators’ sharp limits on hospital reimbursement rates. He said Care New England may have been slightly in the red for the fiscal year that ended Sept. 30 once its audit is complete, compared with an operating profit of about $8 million last year.

“It will probably be around break even, plus or minus,” he said.

Keefe said Care New England and Southcoast are still trying to determine whether the final agreement between them would trigger a formal state review process under the state’s Hospital Conversions Act.

“We are creating this holding company that’s going to sit on top of both organizations, but a lot of the organizational structure and infrastructure of both Care New England and Southcoast will remain in place to really help serve the local community, so there’ll still be some local governance and some local control,” Keefe said.

Secretary of Health and Human Services Elizabeth Roberts said her office and the R.I. Department of Health “will review the proposal closely to ensure that it supports our goals to build healthier communities and a more vibrant economy.”

The announcement from Care New England and Southcoast is just the latest change to roil Rhode Island’s hospital industry. Earlier this year Westerly Hospital’s parent company said it would become part of Yale New Haven Health System, and just this month CharterCARE parent company Prospect Medical was reported to be going up for sale.

Amy Kempe, a spokeswoman for the attorney general, said Yale filed an application last week for an expedited Hospital Conversions Act review of its Westerly Hospital deal. The next step is for the attorney general’s office and the health department to determine whether the application is “complete.” If it is, they will have 90 days to review it.

Ted Nesi (tnesi@wpri.com) covers politics and the economy for WPRI.com. He hosts Executive Suite and writes The Saturday Morning Post. Follow him on Twitter: @tednesi

This story has been updated and expanded.

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