A formerly wooded section of Hartford Avenue in Johnston is the future home of a $42 million rehabilitation hospital planned by Encompass Health, a publicly traded company based in Alabama.

Encompass bills itself as the nation’s largest operator of rehab facilities for patients dealing with strokes, hip fractures, traumatic brain injuries and similar conditions.

Three years ago – back in March 2020 – a little-known advisory panel known as the state Health Services Council recommended approval of Encompass’ proposed 50-bed rehab hospital.

That decision, on a three-to-two margin, was noteworthy for a few reasons. For starters, a state consultant found that Rhode Island already had enough rehab beds to last another 10 years. And as The Public’s Radio previously reported, a lawyer for Encompass was able to change the makeup of the Health Services Council shortly before the vote. She challenged the impartiality of a member who decided to recuse himself even though he didn’t think he had a potential conflict of interest.

The council’s recommendation to support Encompass was approved by then-state Health Director Dr. Nicole Alexander-Scott, who said the project would benefit Rhode Island. A state hearing officer then overturned Alexander-Scott’s decision, finding that Encompass did not prove the need for its rehab hospital. But Encompass didn’t back down.

It appealed the decision in Superior Court. That’s where Judge Brian Stern overturned the state hearing officer last year, ruling that Alexander-Scott was justified in her approval.

Now, three years after the initial vote, heavy equipment is preparing the site for the Encompass rehab facility in Johnston. Why would the company pursue such a lengthy fight to do business in Rhode Island?

“They’re in to make money, right?” said Johnston Mayor Joseph Polisena Jr., during a recent interview in his office. “They wouldn’t go to a region where they didn’t think there was a need, where they weren’t going to make money.”

Polisena believes Encompass can succeed without hurting the five existing inpatient rehab providers in Rhode Island, four of which are linked with hospitals.

“But I think, more importantly,” he said, “we need to cater to the needs of the people, and I think competition in any sense of the word – whether it’s restaurants or whether it’s goods – competition spurs innovation, it spurs growth. It also spurs, I think, lower prices for people.”

In a statement, President of Encompass’ Northeast Region Pat Tuer said the Johnston facility will improve access to high-quality rehab care, while allowing more patients to receive care close to home.

But not everyone thinks the new rehab hospital will be a good thing when it opens next year. And the issue has caught the attention of some state lawmakers.

Senate Finance Chairman Louis DiPalma (D-Middletown), remains skeptical about the state’s decision to approve Encompass’ project, due to how a consultant found a surplus of rehab beds.

“It was articulated that we have an excess of this capacity,” DiPalma said. “So I’m not sure why we’re seeking to put more of it. I think it’s potentially going to have some negative impact on the rest of the state, where these services are provided.”

DiPalma said the state needs to be careful about allowing for-profit healthcare companies to come to Rhode Island.

He cited the example of California-based Prospect Medical Holdings, owner of Fatima Hospital and Roger Williams Medical Center, whose owners and other investors have taken more than a half-billion dollars in dividends out of the company. (The Health Services Council approved a controversial change in ownership for the two hospitals in April 2021, despite questions about the financial stability of the buyer – another instance in which fewer than half of the members of the council decided an important vote.)

When Encompass first proposed its rehab hospital, lobbying groups for hospitals and nursing homes fiercely opposed it. They said it would cannibalize rehab services at existing providers and increase the cost of care. The Hospital Association of Rhode Island – led by former state Senate President Teresa Paiva Weed – declined comment for this story.

Former state Health Insurance Commissioner Christopher Koller, now president of the Milbank Memorial Fund, which focuses on health equity, said the concern about Encompass drawing market share from existing rehabs is real: “Some of Encompass’ volume would have to come from existing facilities.”

The panel that initially recommended approval of Encompass, the Health Services Council, would be eliminated under a bill sponsored by state Senator Dawn Euer (D-Newport). Euer said she believes the council adds confusion to the approval process for healthcare entities.

Health Department spokeswoman Annemarie Beardsworth said the department appreciates the work of the council and is reviewing Euer’s bill.

Ian Donnis can be reached at idonnis@ripr.org. Follow him on Twitter @IanDon and sign up for email delivery of his RI politics newsletter.