Courtesy of ECHN

If all goes as planned, Eastern Connecticut Health Network will be acquired by Vanguard Health Systems and Yale New Haven Health Systems in the next 12 to 18 months.

The three entities inked a letter of intent Thursday that would see Vanguard Health Systems, the Tennessee-based, for-profit corporation, take over the operation of ECHN’s various outpatient facilities and both Rockville and Manchester Memorial Hospitals, while Yale New Haven Health Systems provides clinical support.

“This partnership preserves the mission, vision and values of ECHN and allows us to build on a century of caring for our patients and their families east of river,” Peter Karl, president and CEO of ECHN, said.

It also brings “the globally recognized Yale brand to this part of Connecticut for the first time,” ECHN spokesman Eric Berthel said. ECHN serves 19 towns east of the Connecticut River.

The deal would require ECHN to convert from a nonprofit to a for-profit because Vanguard, which operates 28 acute care hospitals across the country, would be the majority owner and Yale would be the minority owner, according to Berthel. Over the next 90 days, the three organizations will be looking to finalize a deal and seek its approval by healthcare regulators at the Office of Health Care Access.

Hospital officials declined to say how much the deal is worth.

The health network has been courting suitors for at least the last 18 months as it struggles to meet its pension obligations and pay its debt.

State lawmakers cut the ECHN budget this year by about $4.7 million. That’s on top of reductions in Medicare and Medicaid reimbursements and $1.1 million from federal sequestration. Together, the loss from the two revenue streams have left all hospitals struggling with the bottom line. ECHN is no different. Revenue for ECHN is expected to drop $15 million over the next two years. In 2012, the hospital made a $3.7 million profit on $305.8 million in revenue.

Partnering with Vanguard is attractive to the health network because it “will provide the financial ability to invest capital and resources into new technology, infrastructure, and growth.” The three entities involved in the deal also will be able to collectively figure out how best to implement federal healthcare reform, according to the press release.

“In the wake of unprecedented challenges to healthcare organizations across the nation to manage costs and improve quality, this represents an innovative way to enhance access, improve quality, and manage costs,” Marna P. Borgstrom, president and CEO of YNHHS, said. “Developing novel partnerships with organizations like Vanguard Health Systems and ECHN, which share our core values, will allow us to manage within this environment more effectively.”

Vanguard already is further along in negotiations with the Waterbury and Bristol hospitals and Berthel warned that Thursday’s announcement was only the beginning of the process, which could take until next October.

Luckily, there’s a legislative session in between then and now because it’s possible the legislature will have to tackle the broader issue of how for-profits take over nonprofit hospitals and health facilities.

In July, Gov. Dannel P. Malloy vetoed a bill that would have helped create a governance structure that would have allowed Vanguard to purchase physician practices through a medical foundation without violating federal law. The bill would have given the for-profit two seats on the foundation’s board of directors. The bill was so controversial that it caused Waterbury lawmakers, labor leaders, and lobbyists for the entities to almost come to blows on the final night of the legislative session.

In the end, Malloy vetoed the bill.

“As this bill carves out an exception to existing law for the benefit of specific for-profit entities, further consideration is warranted to determine whether such exceptions are appropriate and, if so, whether existing law should be amended on a broader basis,” he wrote. “Further consideration is also warranted to determine whether current law provides adequate safeguards to guard against any perceived or actual threat to the independence of medical decisions made by providers employed by for-profit entities.”

Berthel said they were aware of the vetoed legislation, but he is confident they can work with the governor’s office to find a solution that is beneficial to everyone.

Following Malloy’s veto in July, Rep. Sean Williams, R-Watertown, said it puts in “jeopardy a joint venture between Waterbury Hospital and Vanguard Health Systems Inc.”

As member of the Waterbury delegation negotiating the bill, Williams said it’s clear that pressure from union leaders rather than doing what’s right for health care in the Waterbury region is what drove Malloy’s veto decision. The unions and Malloy deny that was the case.

“We asked him [Malloy] to take a look at this whole for-profit purchase,” Paul Filson, the political director of the Service Employees International Union, said in July.