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L&M's Westerly offer a rational risk

Published June 01. 2012 4:00AM

The decision by the Lawrence & Memorial Hospital Corp. to make an aggressive bid to obtain control of the struggling Westerly Hospital is a calculated risk, but a good one. The corporation that oversees the community hospital in New London could choose to rest on its current success, playing it safe and conservative. But in a changing health care market that could prove to be the greater risk.

With federal Medicare payments tightening and efforts accelerating to reduce health care spending, hospitals across the country are seeking partnerships, mergers and acquisitions to remain competitive. By growing smartly, hospitals can reduce management costs, gain greater flexibility in where and how services are offered and provide treatment options once reserved for larger medical institutions.

There is also a defensive element in the L&M Corp.'s bold move to acquire Westerly Hospital. Someone will gain control of that hospital, which entered receivership last December after years of operating at a loss. If it is a competitively aggressive for-profit chain, that could mean difficulties for L&M.

Attorney Mark Russo, the special master the court placed in charge of taking Westerly Hospital through receivership, filed a petition in Rhode Island Superior Court recommending that it accept the "stalking horse" bid from L&M. If, as expected, the court approves, the bid will become the standard by which the court evaluates any subsequent bids.

L&M Corp. submitted what is in essence a $69.1 million bid. That figure includes $22 million to assume existing Westerly Hospital liabilities; $6.5 million to fund a turnaround plan to restore the non-profit community hospital to fiscal health; and $30 million invested over the next five years in technology, equipment, infrastructure and services.

The proposed investment comes as L&M, also a non-profit community hospital, is coming off one of its most fiscally successful years and at a time when it holds an A-plus debt rating, facts that convinced Mr. Russo that L&M can honor its commitments.

Important to local residents, The Westerly Hospital would remain an independent acute care hospital, with its existing name and services, according to the proposal. Both hospitals would have the L&M Corp. as their common, corporate parent.

Some might question the wisdom of L&M taking control of a struggling community hospital, but Chief Financial Officer Lugene Inzana assures us that L&M has taken a hard look at the root causes of Westerly Hospital's fiscal problems and is satisfied more efficient businesses practices can address them. A major fiscal drag was the North Stonington Health Center that Westerly Hospital opened in 2010. The health center is not included in the sale of the Westerly Hospital.

We recently touted the announcement that L&M would soon begin construction of a $35 million cancer diagnosis and treatment center to be staffed by clinicians from Dana-Farber Cancer Institute. That project alone is a big challenge. Given a choice, the L&M Corp. would probably choose another time to pursue the purchase of a second hospital. But opportunity does not always arrive on a schedule.

L&M began exploring the potential for acquiring Westerly Hospital even before that hospital entered receivership. Its bid shows just how serious it is. It is in the best interests of both the L&M Corp. and the people of the Westerly area that they succeed.

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