PORTLAND — Call it a medical breakthrough.
On Aug. 20, Mercy Health System of Maine announced it would negotiate its potential sale to Steward Health Care System, a for-profit hospital chain based in Massachusetts. If successful, the sale would be the first acquisition of a Maine hospital by a for-profit company.
But a week after the announcement, the prognosis for Mercy – and for health care in southern Maine – is unclear.
Mercy, a Catholic, not-for-profit system, operates Portland’s second-largest hospital, with 230 beds at its State Street and Fore River Parkway campuses. Mercy is owned by Catholic Health East, a not-for-profit system that runs 35 hospitals in 11 states.
Steward runs 10 community hospitals in eastern Massachusetts, six of which have Catholic affiliations.
The deal is still in its early stages, with Mercy signing a letter of intent to negotiate exclusively with Steward. Terms of a potential sale were not disclosed.
Steward’s potential acquisition of Mercy represents an “unusual strategy,” according to Andrew Coburn, a national expert on health policy who chairs the public health program at the University of Southern Maine’s Muskie School of Public Service.
“More often, for-profits invest in medical specialty organizations, which receive better insurance reimbursement,” he said. “The (potential acquisition of Mercy) makes me wonder what Steward’s strategy is.”
Repeated calls by The Forecaster to Steward and to Mercy were not returned.
As a not-for-profit institution, Mercy is known for its charitable care and community service. Many of its patients are covered by government safety-net programs Medicare and Medicaid, which typically reimburse hospitals at lower rates than private insurers do.
In its written announcement last week, Mercy said, “Steward will commit to maintaining Mercy’s community benefits and charitable care.” But that sort of pledge is “hard to enforce,” according to Coburn.
“In the past, for-profit acquirers have been less likely to provide charitable care, although the data is mixed,” he said.
Often, he said, a for-profit company acquiring a not-for-profit hospital will create a philanthropic organization to continue providing services to the community. Proceeds of the sale may be channeled into the organization, as they were when Portsmouth Hospital in New Hampshire was sold to Hospital Corp. of America in 1985.
Such an arrangement would have to be reviewed by the Maine attorney general’s office, which must approve any sale. The acquisition also would have to be approved by the state’s Department of Health and Human Services, as well as federal regulators.
The entire process could last well into 2013, Coburn said.
In addition to continuing some level of community service, Steward may provide Portland with a windfall of new tax revenue.
Since the sale would shift the previously nontaxable Mercy onto the tax rolls, Steward might pay as much $865,000 in annual property taxes, according to city spokeswoman Nicole Clegg. She cautioned that the figure is only an early estimate.
Other questions remain about the impact of the acquisition.
Steward, backed by venture capital firm Cerberus Capital Management, has invested a total of nearly $600 million in its hospitals over the past two years. Making an investment in Mercy might amount to a “life-preserver for a system that has been struggling,” Coburn said.
With financial resources to improve its technology or add medical staff, Mercy might “accelerate its head-to-head competition” with Maine Medical Center, he added.
The result could be lower costs for health care in southern Maine – or expensive medical capabilities that are redundant and under-used.
Steward’s deep pockets also could prepare Mercy to better cope with changes brought about by the federal Patient Protection and Affordable Care Act, better known as “Obamacare.”
Under the new law, millions of previously uninsured Americans may seek health services, placing new demands on hospitals. Obamacare also shrinks future Medicare reimbursment for hospitals, and creates new administrative requirements.
“For a system like Mercy to be successful in the future, it’s going to need a whole new infrastructure, and that infrastructure is expensive,” Coburn said.
Time will tell, he said.
“Ultimately, the question of whether or not (the acquisition) is a good thing depends on where you sit,” Coburn said. “It’s unclear what a successful, for-profit Mercy will look like. And it’s too complicated a problem to be just a matter of being for-profit.”