The consolidation of the hospital industry progressed Wednesday as state regulators gave tentative approval to the $105 million purchase of Manchester Memorial and Rockville General hospitals by Prospect Medical Holdings, a for-profit company based in Los Angeles.
The office of Attorney General George Jepsen and the Office of Health Care Access posted their proposed final decisions for Prospect Medical’s purchase of the two hospitals, which are the major assets of the Eastern Connecticut Health Care Network.
Prospect is the second suitor to seek to purchase EHCN and convert its hospitals from non-profit to for-profit status, part of a national trend that has seen struggling community hospitals merge and then consolidate into ever-expanding health care chains.
“These issues are no less true for ECHN than for any other community hospital or hospital system in Connecticut,” Jepsen wrote in his proposed decision. “It is in this context that ECHN has decided to sell substantially all of its assets to PMH. Its stated goal in making this decision is to ensure the continued existence of ECHN’s facilities and services, to provide sufficient capital to enhance the facilities and services, and to integrate its operations with an established health care system that is prepared to navigate the evolving health care system of the future.”
The primary role of Jepsen’s office in hospital sales and for-profit conversions is to ensure that the non-profit owner obtained a fair-market price, the decision to sell was reasonable and the proceeds will go to a charitable foundation for health care in the hospitals’ communities.
The Office of Health Care Access, or OHCA, is responsible for reviewing the transaction for its effect on the availability and quality of health care in the region served by ECHN and the two hospitals. Manchester Memorial and Rockville General are in the contiguous eastern Hartford suburbs of Manchester and Vernon.
In addition to the $105 million purchase price, Prospect Medical is required to invest no less than $75 million in capital improvements over five years, and both facilities must remain as acute-care hospitals for at least three years. Nearly all employees will be offered employment by Prospect.
Prospect, which owns 13 hospitals and 40 clinics and outpatient centers in California, Texas and Rhode Island, also is in the process of buying and converting Waterbury Hospital. Tenet Healthcare Corporation previously had ended bids for Waterbury, Manchester Memorial, Rockville and other hospitals, complaining about an onerous approval process.
ECHN, a partnership formed by Manchester Memorial and Rockville General in 1995, serves 19 towns: Andover, Bolton, Coventry, Ellington, Manchester, South Windsor, Tolland, Vernon, Willington, Ashford, Columbia, East Hartford, East Windsor, Glastonbury, Hebron, Mansfield, Somers, Stafford and Union,
Aside from the hospitals, it is an owner or part owner of regional medical assets, including Evergreen Endoscopy Center, Aetna Ambulance Service, Metro Wheelchair Service, Ambulance Service of Manchester, Tolland Imaging Center and physician groups.
Jepsen’s decision describes ECHN as hobbled by pension liabilities, reduced reimbursements and a lack of access to capital.
“Starting in 2001, when ECHN lost more than $10 million, capital investments had to be deferred and long-term debt and pension liabilities continued to grow,” Jepsen wrote. “The pension funding reforms of 2006 and the market crash of 2008 created additional financial problems for ECHN. Although ECHN took numerous steps to mitigate the losses from these events, it was still unable to make significant capital investments. ECHN’s plans to expand and introduce new programs to help recruit physicians were also put off.”
OHCA’s proposed decision sets several conditions, including the submission of a community health needs assessment and the maintenance of current levels of charity care and community volunteer services.
The public can comment on the proposed decisions until June 3. Final decisions are expected June 10.