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Steward plans to buy Mercy, continues path toward 'Big Med'

Maine is often regarded as being behind the rest of the country in a lot of areas, but in August, it found itself experiencing a growing healthcare business trend dubbed “Big Med.”

Portland, Maine’s nonprofit, Catholic, Mercy Health System of Maine signed a non-binding letter of intent with Steward Health Care System, a Massachusetts-based chain that has been buying financially-stressed facilities in Massachusetts and elsewhere.

[See also: Steward Health Care aims to move into Maine]

Steward was created in 2010 when Cerberus Capital Management, a multibillion-dollar private equity firm specializing in investing in distressed companies around the world, purchased the Catholic, six-hospital Caritas Christi Health System. It currently operates 10 community hospitals in Massachusetts and is in the process of trying to close a deal to purchase Landmark Medical Center of Woonsocket, Rhode Island. Last spring, Steward began offering a low-cost health insurance option.

Steward’s business model amounts to what surgeon and author Atul Gawande calls Big Med – large-scale, production-line medicine along the lines of retail giant Wal-Mart.

Gawande wrote in a New Yorker article that Steward is “trying to create what some have called the Southwest Airlines of healthcare – a network of high-quality hospitals that would appeal to a more cost-conscious public.”

“It remains to be seen whether Steward will be successful in providing higher quality and lower costs to consumers through centralization and standardization,” said Adam Powell, a health economist and president of Payer+Provider Syndicate, a Massachusetts-based healthcare consulting firm. “If it does, it has the potential to be quite successful.”

Steward’s business strategy for Mercy and the other facilities it has purchased is to invest millions of dollars, which gives the once-struggling facilities the scale to move from a fee-for-service model to a risk-based global payment reimbursement model and the breathing room to refocus on such things as clinical integration, prevention and wellness.

“While Steward is a taxable entity, we are unique,” said Steward spokesperson Christopher Murphy. “The fact that we began as a system of Catholic hospitals in a state with near-universal healthcare has shaped our mission and our commitment to community benefits and charitable care. As a system, we combine the benefits of a non-profit (community benefits and commitment to provide care regardless of ability to pay) and a for-profit (we provide tax revenue to our communities).” 

But no matter the benefits a big chain can offer a community, they often also make a lot of people uneasy.

In places like Massachusetts, Steward has spurred some nervousness, and in some cases, outright hostility in the communities where it has expanded its footprint.

For example, in December, the Massachusetts Council of Community Hospitals asked the state’s attorney general to investigate a contract between Steward and a 150-member doctor group that had been affiliated with Beth Israel Deaconess Medical Center, citing concerns that Steward was not playing fair and gaining too much market power. And its purchase of Landmark in Rhode Island has dragged on with Steward doing public battle with Blue Cross & Blue Shield of Rhode Island over renegotiating insurance contracts and debunking a report produced for Rhode Island regulators that found Steward in the red in fiscal year 2011.

In a blog posting on healthcarefinancenews.com, David Williams, author of Health Business Blog and founder of Massachusetts-based MedPharma Partners, a healthcare business consulting and strategy firm, chided community hospitals in Massachusetts for complaining about Steward, writing that Steward “has seized the opportunity to create a cost-effective, high quality, high service offering that can thrive in the marketplace” while the complaining community hospitals have failed to take advantage of their competitive advantages in the community.

“(Steward is) introducing new products and services with the idea of competing more based on cost and quality – the two in combination. In other words, competing on value,” Williams told Healthcare Finance News in a phone interview. “It’s not to say that existing healthcare providers don’t do that at all, but I would think that Steward puts a new – they shake up the market and they don’t accept the status quo.”

Oddly, in a state where some towns have fought against and blocked Wal-Mart stores from being built in their neighborhoods there has been little (public) hullabaloo in Maine over the likely entrée of Steward into the state’s largely nonprofit healthcare market.

The Maine Hospital Association, the state’s Department of Health and Human Services and Mercy all declined to comment for this story.

Maybe, like Mercy’s Portland neighbor and competitor, Maine Medical Center, everyone is taking a wait-and-see approach.

“Improved access to quality care is a goal we all share, and is something that will benefit the Greater Portland community,” said Richard Petersen, president and CEO of Maine Medical Center in an email to Healthcare Finance News. “We'll be watching this potential transaction with interest as it unfolds.”

Or, maybe, the quiet is an indication of confidence. Being behind the rest of the country, usually seen as a disadvantage, offers the Pine Tree State a bonus in this case: being able to see Big Med coming and to prepare to use it to its advantage.

 

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