A deal to sell the Rehabilitation Hospital of Rhode Island, in North Smithfield, fell through yesterday as the Missouri company that wanted to buy a majority stake in the health-care facility pulled out of the transaction, according to state and hospital officials.

RehabCare Group Inc., of St. Louis, in September 2007 had agreed to pay $1.8 million to Landmark Health Systems Inc., the parent of the rehabilitation hospital, for an 81-percent the share of the facility.

“Obviously, today we are disappointed that RehabCare made the decision to withdraw their application,” said Richard Charest, president of the Rehabilitation Hospital of Rhode Island. “We have worked closely with RehabCare to comply with all requests from the Department of the Attorney General and the Department of Health to keep this process moving forward.”

RehabCare (RHB:NYSE) informed the state Department of Health of the decision in a letter sent to the agency yesterday afternoon, according to department spokeswoman Annemarie Beardsworth, just as the department had decided that the company’s application to take a controlling stake in the rehabilitation hospital could move forward.

Under state law, the Health Department and the attorney general’s office must approve ownership changes at the state’s health-care facilities.

“As I’ve said all along, what’s most important is helping Landmark survive and, if at all possible, put itself on a path to profitability so that it can continue to serve the people of northern Rhode Island,” said Attorney General Patrick C. Lynch. “Obviously, the Rehabilitation Hospital of Rhode Island is one of Landmark’s key assets because it offers comprehensive and highly specialized services. We were ready to proceed with our review of this proposed sale and we will be ready to act if any party makes a similar proposal.”

The company’s decision follows closely on a vote by the rehabilitation hospital’s unionized nurses and therapists authorizing a strike. In meetings Tuesday, the workers approved the tactic as a way to protest changes RehabCare wanted to make to their health-care benefits.

The employees, about 60 in all, have been working without a contract since June 30, when a three-year pact lapsed.

“We made it perfectly clear before they voted that [RehabCare] may decide that they’re going to pick up and go home and we were going to have to assume some risk,” said Chris Callaci, a field representative with United Nurses and Allied Professionals, the union that represents the nurses and therapists.

Contract negotiations stopped in June when a state Superior Court judge named a Pawtucket lawyer to oversee Landmark Medical Center’s operation.

The hospital had petitioned Superior Court that month to clear the way for Landmark’s potential merger with another hospital. In his role as overseer, Jonathan Savage, of Shechtman Halperin Savage, is functioning as the hospital’s president, chief executive officer and chairman of the board, ruling on all expenditures, hiring and other matters.

Judge Michael A. Silverstein last month also formally appointed the lawyer as overseer of the Landmark subsidiary that runs Rehabilitation Hospital of Rhode Island.

The RehabCare deal was part of a vision Savage had for creating a medical “campus” on the grounds of Landmark Medical Center in Woonsocket.

“We contemplate a state-of-the-art health-care campus; we need to be a little creative as to how we get there,” Savage said at a Nov. 13 subcommittee meeting of the Health Services Council. The council is an advisory board to the director of the state Department of Health.

RehabCare wanted to move the 81-bed rehabilitation unit from North Smithfield to a new building it would erect on land leased from Landmark on the medical center’s 16-acre Cass Avenue property. The rehabilitation unit joint-venture would join another company, 21st Century Oncology Co., in operating a unit on the Landmark property.

The medical-campus plan was intended to save Landmark money in the short run by making some operations more efficient, and make money for the financially strapped hospital in the long run, as RehabCare would lease land from Landmark and pay to use hospital services. The $1.8-million payment would have stayed with the Landmark subsidiary set up to keep a 19-percent stake in the rehabilitation unit.

The campus plan is now on hold.

“The question is: ‘How are we going to integrate [the rehabilitation unit] into the Landmark campus now?’ ” Savage said. “It’s my hope that we’re still going to be able to integrate it into the Cass Avenue model.

“After the first of the year we will revisit the landscape to see if that’s an appropriate option.”

Operations at the rehabilitation hospital will remain the same for now, he said.

“I think the future of the unit is fine. At least in the short term, I don’t think it impacts the unit at all,” Savage said of RehabCare’s decision.

The hospital will save money in the short term as it no longer will pay the salaries of a team of RehabCare employees brought in to work on the unit’s integration into the company’s operations.

As for the roughly 60 workers worried about their health-care benefits, Savage said: “I anticipate at least for the short term we will maintain status quo.”

A Monday meeting to review the RehabCare application has been canceled as a result of yesterday’s decision.

pgrimald@projo.com