Waterbury Hospital in September 2012. Erin Covey / Waterbury Republican American
Waterbury Hospital
Waterbury Hospital Erin Covey / Waterbury Republican American

Waterbury’s mayor and the state’s hospital industry say that Connecticut regulators are jeopardizing plans by a national for-profit hospital chain to buy the city’s two struggling hospitals and others in Bristol, Manchester and Vernon.

In public comments filed with the state Office of Health Care Access, battle lines are drawn over 47 conditions the office proposed last week for Tenet Healthcare Corporation to purchase Waterbury Hospital, the first of five facilities Tenet is trying to buy in Connecticut.

Mayor Neil M. O’Leary joined the industry in warning that a proposed five-year ban on reductions in staffing or reductions of services “will force Tenet to reconsider its decision to acquire Waterbury Hospital and St. Mary’s Hospital.”

Operating at a loss and unable to make overdue capital improvements, Waterbury Hospital is rapidly running out of ways to cut expenses and remain viable, said Darlene Stromstad, the hospital’s president and chief executive officer.

“There is a point – and it’s very close – where there are no more options,” she said in comments filed with the Office of Health Care Access.

Tenet complained in its written comments that the proposed conditions would bar the company from eventually operating Waterbury and St. Mary’s “as components of an integrated system.”

To assure the Federal Trade Commission that ownership of both hospitals would not be monopolistic, “Tenet will be demonstrating that a rationalization of services between the two institutions is required to generate significant efficiencies and cost savings to ensure the long-term success in the delivery of health care in Waterbury,” said Collin P. Baron, counsel to Tenet.

A ban on eliminating duplicative services “renders achievement of that requirement impossible, and thus makes it doubtful that the transaction will be permitted to proceed,” Baron said.

The conditions proposed by the health regulators were praised by Senate Majority Leader Martin Looney, D-New Haven, unions that represent employees, the National Physicians Alliance, the Universal Health Care Foundation of Connecticut, and the Connecticut Citizen Action Group.

Looney said a five-year ban on reducing the clinical staffing levels was “an excellent safeguard for both patient care and for the hospital employees.”

Tom Swan, the executive director of the Connecticut Citizen Action Group, challenged the hospital’s assertion that its only access to the capital markets rests in a takeover by Tenet.

“The state of Connecticut has often provided capital to hospitals, so the sky is falling argument doesn’t work for me,” Swan said.

The administration of Gov. Dannel P. Malloy is caught between the unions and consumer groups, which are opposed to the entry of a for-profit chain into a state dominated by non-profit hospitals, and an industry that insists it needs flexibility to thrive or even survive.

The epicenter of the fight is Waterbury.

The city has watched nervously for more than a decade as its two hospitals, Waterbury and St. Mary’s, have struggled to adjust to the disappearance of the region’s industrial base and the emergence of a population that is growing older, poorer and medically needier.

Nearly 75 percent of patients at Waterbury Hospital rely on Medicare and Medicaid, which pay less than private insurers.

The hospital lost between $2.5 million and $17.8 million in each of four consecutive years beginning in 2006, and it projects annual losses of $10 million beginning next year. It also needs at least $50 million in capital improvements, yet has no ready access to capital markets, according to the Office of the Attorney General.

“The bottom line,” according to Stromstad, “is this: Two years ago, when we went back out into the markets to look for a capital partner, only two companies responded. Both were for-profit, out-of-state organizations.”

The conditions ultimately imposed on the Waterbury sale and conversion from a non-profit to a for-profit entity are expected to be a template for the pending applications to purchase St. Mary’s, Bristol Hospital, Manchester Memorial and Rockville General in Vernon.

“If this is not done, our fear is that Tenet will not only abandon its efforts to acquire Waterbury Hospital and St. Mary’s Hospital, but also could force Tenet to abandon its other proposed transactions in Connecticut as well,” O’Leary wrote. “As a final note, it is important to realize that if Tenet decides not to proceed with its acquisitions, other prospective purchasers will not materialize once they read the conditions that were imposed on Tenet and under the environment they will face.”

Bristol Hospital and Manchester Memorial Hospital raised similar concerns.

Rep. Sean Williams, R-Watertown, complained to the office that many of its conditions were considered and rejected by the General Assembly in hospital legislation negotiated in the closing days of the 2014 session.

“As someone who helped to negotiate the final package, I can tell you unequivocally that the legislature firmly rejected many of the conditions that OHCA has included in the decision document,” Williams wrote.

Tenet is making the purchase through Vanguard Health, a hospital chain it bought after Vanguard already had begun the effort to acquire Waterbury Hospital for $45 million.

Two agencies issued tentative approvals of the Waterbury deal with conditions last week.

The Office of Health Care Access, which is part of the state Department of Public Health, was responsible for overseeing quality and scope of services provided by hospitals. Its findings of facts and recommended conditions were the work of a hearing officer designated by Dr. Jewel Mullen, the commissioner of public health.

The attorney general’s office, which is responsible for protecting charitable assets, reviewed the deal and concluded that the non-profit hospital was obtaining a fair market price from Tenet.

One of the attorney general’s major proposed conditions was that $55 million in capital improvements promised by Tenet would be made exclusively at Waterbury Hospital, not generally on health expenditures in the city.

Mark Ojakian, the governor’s chief of staff, said the governor’s office is monitoring the case, but it must tread carefully in regulatory proceedings.

Under state law, the authority for revising the proposed conditions rests with a deputy commissioner of public health who oversees the office.

Mark is the Capitol Bureau Chief and a co-founder of CT Mirror. He is a frequent contributor to WNPR, a former state politics writer for The Hartford Courant and Journal Inquirer, and contributor for The New York Times.

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