PORTLAND, Maine — The planned sale of Mercy Health System of Maine to a Massachusetts chain may mark the first time a for-profit company owns a Maine hospital, but the implications for health care go beyond tax status, according to Mercy’s CEO and an observer of the deal.
Mercy, which includes two flagship hospitals in Portland and several health care facilities in southern Maine, has signed a letter of intent to sell the system to Steward Health Care System LLC. Based in Boston, Steward runs 10 community hospitals in Massachusetts.
Terms of the deal have not been disclosed. Mercy, a Catholic organization, and Steward still must reach a final agreement and win approval from the Vatican and the state and federal governments, including the certificate of need unit at the Department of Health and Human Services, which evaluates hospital projects. The entire agreement and approval process is expected to take about six months.
Mercy is a member of Pennsylvania-based Catholic Health East, which operates 35 acute care hospitals across the eastern seaboard.
If the sale goes through, Mercy would become the first hospital in Maine to be owned by a for-profit company.
One exception is the New England Rehabilitation Hospital of Portland, which is jointly owned by Maine Medical Center and HealthSouth. It’s a for-profit, but as a specialty facility it falls under a different category than hospitals such as Portland’s Maine Medical Center or Eastern Maine Medical Center in Bangor.
In Massachusetts, Steward has prided itself on delivering quality health care at lower costs through a system of providers, according to Stuart Altman, a health care economist at Brandeis University in Waltham, Mass. He speculates that the Mercy deal is part of the company’s wider strategy.
“Buying one hospital in Maine doesn’t work,” he said. “So the question is whether this is just the beginning.”
Steward has attracted doctors to join its system in Massachusetts, a game plan that could give MaineHealth, parent company to MMC, some competition if Steward does the same in southern Maine, Altman said.
Steward happens to be a for-profit company, but even an aggressive nonprofit could adopt the same strategy — undercutting more expensive hospitals or funneling patients away, he said.
“It’s either just the beginning of [Steward] trying to become more aggressive and buying more, including physician practices in Maine, or it’s a way to [use Mercy] as a feeder system into their Massachusetts system … What they’re saying in Massachusetts to employers is ‘Come into my system and I’ll give you a 15 to 20 percent reduction in premiums if you bring your employees in,’” Altman said.
Chris Murphy, a spokesman for Steward, said the company was attracted to Mercy because the nonprofit’s philosophy, including its focus on disease prevention and wellness, aligns with its own. Both also have Catholic roots — Steward’s original six hospitals are Catholic-affiliated, he said.
Steward isn’t in talks with any other Maine hospitals, but it’s always interested in partnering with organizations that have a compatible mission and a focus on health care payment reform, he said.
Steward uses a system that pays hospitals and doctors a flat rate per patient each month, rather than paying for each visit or procedure. It also subscribes to a model known as accountable care, where health care providers are rewarded financially for better coordinating care so that patients are healthier and happier with their treatment.
“We do think our model, which is an integrated, community-based model, can work anywhere,” Murphy said.
The company also is expanding its reach outside Massachusetts with a deal to buy Landmark Medical Center in Rhode Island.
The potential acquisition in Maine gives Mercy the opportunity to tap into Steward’s approach to health care while giving Steward another valuable provider to add to its mix, said Mercy CEO Eileen Skinner.
“Patients will experience the same high-quality, compassionate, responsive care that we’ve always given,” she said. “The real change is in the financial payment model.”
The Mercy system operates two hospital campuses on State Street and Fore River Parkway in Portland, as well as VNA Home Health Hospice in South Portland, an addiction treatment center in Westbrook, and health services in Windham.
Steward has pledged to maintain the level of free care Mercy provides to people who can’t afford their medical bills, which is more generous than state law requires, and to keep its 1,700 employees, Skinner said.
Many of the hospitals Steward has bought up were on the brink of bankruptcy or financially struggling. It has invested $600 million in infrastructure at its 10 hospitals in Massachusetts, including for electronic medical records, Murphy said.
Mercy has never faced bankruptcy, but has lost money for the last three years, Skinner said. Its revenues totaled $190 million in 2010, a drop from $196 million in 2009, according to its most recent tax filing.
Steward, which is owned by the private equity firm Cerberus Capital Management, has invested heavily in its Massachusetts hospitals, but its relationship with nurses has been an up-and-down struggle, according to David Shildmeier, a spokesman for the Massachusetts Nurses Association.
The union represents 23,000 nurses in Massachusetts, including 2,000 who work for Steward hospitals.
Formed in 2010, Steward has made bricks and mortar improvements to its hospitals, and even saved some from closure, but the company hasn’t always invested enough in the staff who provide care, he said.
“They have a different orientation than your local community hospital,” Shildmeier said. “I think they’re trying to figure out how to make that work and we’re trying to figure out how to convince them how health care should be delivered and what their vision is with the reality of taking care of patients every day.”
Murphy said the company’s hospitals typically exceed state and national standards for the quality of their health care.
“If quality suffers, the hospitals actually make less money,” he said.