Westerly - The fate of Westerly Hospital is "the single most important issue facing our community today," Town Manager Steven Hartford said Monday, adding that the preservation of acute medical care is crucial for maintaining Westerly's quality of life because it is both its major employer and provider of health services.

Both Hartford and Town Council President Diana Serra said the community and town government must support the financially troubled hospital's efforts to reorganize and restore viability, and pledged any assistance they could provide.

Hartford added that the community must also accept that the hospital will have to change to survive, most likely by forming a partnership with another hospital, because the marketplace probably can't sustain Westerly Hospital as the standalone entity it is now.

Their remarks came after a presentation to the Town Council by Attorney Mark Russo, the court-appointed special master assigned to guide the hospital through receivership and to financial stability. The hospital voluntarily entered receivership in December after ending fiscal 2011 with a $5.7 million operating deficit - the latest of several years of red ink - and insufficient cash to continue without legal protection from creditors.

Since becoming the special master, Russo said, he has fielded inquires from at least four other health care companies about possibly making an offer to purchase the hospital. One was a regional hospital network, two were for-profit hospital companies and another was Lawrence & Memorial Hospital in New London, which had been in merger talks with Westerly Hospital when it entered receivership.

Russo and L&M leaders have met once, and Russo said Monday he has asked for a second meeting with L&M, which like Westerly Hospital is a nonprofit community institution. He said he is also hoping to meet with Yale-New Haven Hospital, which already has affiliations with L&M and several other Connecticut hospitals and provides some services to Westerly Hospital.

Russo added, however, that formal merger or partnership proposals are not yet being received because the specific criteria have not yet been developed. He plans to meet with a group of stakeholders and state regulators to write a request for proposals that would be presented to Rhode Island Superior Court Associate Justice Brian Stern for approval and then publicly issued.

"We hope to be out in the marketplace sometime in February, and in two to three months to choose a buyer," he said. After a buyer is selected, the offer must be reviewed and approved by state regulators and the court. Russo said he expects it will be one year to 18 months before the entire process is complete and the hospital leaves receivership as a reorganized entity.

"The goal is to protect it as an asset to the community," Russo said.

The most likely scenario, Russo told the council, is that Westerly Hospital will become part of a regional nonprofit hospital network. The second most likely is for it to be acquired by a for-profit network, and the third is for the hospital to remain a standalone entity.

"It's possible, but it would be difficult to sustain," Russo said.

j.benson@theday.com