Waterbury Hospital has new plans to be purchased, turn for-profit

Waterbury Hospital

Erin Covey / Waterbury Republican American

Waterbury Hospital

Waterbury Hospital has announced plans to be acquired by a private Los Angeles-based health care company, the latest move in the hospital’s quest for long-term stability.

Prospect Medical Holdings, which operates 13 hospitals and 40 clinics and outpatient centers in California, Texas and Rhode Island, is Waterbury’s third potential buyer in five years.

A previous plan to form a joint venture with a Texas company and Waterbury’s St. Mary’s Hospital fell apart over concerns raised about providing reproductive services, while another potential purchaser, Tenet Healthcare Corporation, walked away in response to what it considered overly onerous conditions proposed by the state regulator in charge of hospital transactions.

Waterbury Hospital’s announcement about the latest plans alluded to the past difficulties in completing a transaction. In a statement about the agreement, President and CEO Darlene Stromstad described a “parallel strategy” of strengthening the hospital’s services and reducing costs while also working toward the partnership.

She said in an interview that Prospect was appealing because of its reputation, its history of working with unions, and its experience in Rhode Island, another state with a highly regulated health care market.

In addition, Stromstad said, it was important that this deal not be contingent on any other hospitals.

Tom Reardon, president of Prospect East Holdings, said the company is in talks with other Connecticut hospitals, but that the Waterbury Hospital deal does not depend on the outcome of those talks.

Reardon said that if the sale goes forward, Prospect would assume the hospital’s union contracts and pension obligations.

The Tenet deal came under fire from the unions representing hospital workers, as well as some community groups. Some legislators also raised concerns about the hospital’s purchase by a for-profit company.

If Waterbury and Prospect continue their plans — so far, the two sides have signed a letter of intent that will allow them to develop an agreement for a sale and apply for regulatory approval — it would be the first attempt by a for-profit health care chain to buy a Connecticut hospital since the Tenet deal fell apart late last year.

All but one of Connecticut’s 29 acute care hospitals are nonprofit, and until last year, state law made it virtually impossible for for-profit hospitals to operate in the state. That changed as part of a deal reached on the last night of last year’s legislative session in response to Tenet’s plans. The new law made it easier for hospitals to operates as for-profits, but also expanded state regulatory oversight on proposed transactions that would turn nonprofit hospitals into for-profits.

That change allowed Tenet to proceed with its plans to purchase five Connecticut hospitals in partnership with the Yale New Haven Health System.

But late last year, the state Office of Health Care Access, which regulates hospital transactions, proposed setting strict controls over the Tenet-Waterbury acquisition, involving staffing levels, services and pricing.

Ten days later, Tenet announced that it was giving up its plans to buy all five Connecticut hospitals, citing the proposed decisions and its view that “the approach to regulatory oversight in Connecticut would not enable Tenet to operate the hospitals successfully for the benefit of all stakeholders.”

Nothing in law has changed since that happened. Some legislators have warned that the state’s climate is unfriendly to for-profit hospitals that could provide long-term stability to small community hospitals and compete with the state’s large nonprofit hospital systems. A legislative proposal now pending would require nonprofit and for-profit purchasers to go through the same process, and would require state regulators to consider the consequence of not approving the transaction in their decisions.

But Reardon said Tuesday that he believes an agreement to purchase the hospital — and its parent company, the Greater Waterbury Health Network — can get through the state’s current regulatory framework. He has been meeting with legislative leaders, and the attorney general and governor’s office.

“My impression, whether right or wrong, is that the state is open for business and willing to do business with a for-profit,” he said.

And Stromstad said she believes the failure of the Tenet deal has probably changed the environment for this proposal. The hospital has struggled financially, and the loss of its most recent potential partner raised concerns about its viability.

“There’s a great awareness of the situation that is Waterbury Hospital, and I think that there is a great deal of empathy for our organization,” she said. “People understand and respect the Greater Waterbury Health Network, for the work that we did and the sacrifices that we made over the last couple of years, and I think there’s a feeling that they would like us to land well.”

Barbara Simonetta, president of Connecticut Health Care Associates, which represents 400 nurses and 150 technicians at the hospital, said she was still researching Prospect, but was hopeful. She described the company’s approach to patient care issues and community needs as “very good.”

“At this point, they seem to be willing to work with the nurses and the technicians and their contracts, so that’s a very positive sign,” she said.

“I hope that this is the right partner, and that the process can move forward without the animus that was there in the last partner,” Simonetta added.

On Tuesday, Waterbury Hospital released a series of questions and answers about the proposed transaction, including some blunt questions related to the legacy of the previous deals.

Why does Prospect think it can complete this transaction when neither LHP — the first suitor — nor Tenet could?

“Prospect has a strong reputation as an ethical and responsible healthcare company, and maintains positive, collaborative relationships with its physicians, employees, labor unions and payers, as well as with the communities served by its hospitals,” the document said. “We all believe that Prospect can get a deal done because of their experience in Rhode Island, another highly regulated state, and their collaborative approach to working with physicians, medical groups, the community and organized labor.”

Elsewhere in the Q&A, the authors suggested that the conditions regulators proposed for the Tenet transaction were specific to that deal.

“We believe that once the state regulators review our offer for Waterbury, they will treat it as a separate and unique transaction and apply conditions specific to it,” the statement said.

The document said all employees who want to remain at the hospital would be offered the chance to do so in their current positions.

The deal must receive approval from the state Office of Health Care Access and attorney general, as well as federal authorities.

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