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Emory Healthcare and St. Joseph's Hospital announced a joint operating company in March that will give Emory a 51% ownership stake.
Emory Healthcare and St. Joseph's Hospital announced a joint operating company in March that will give Emory a 51% ownership stake.

Healthcare Market Profile: Atlanta-Sandy Springs-Marietta

Aiming for partnership: Complexity of consolidation nearly derails deal


By Maureen McKinney
Posted: July 25, 2011 - 12:01 am ET
Tags:

The healthcare consolidation wave that has dominated many regions of the country arrived late for the more than 40 hospitals in the metropolitan Atlanta area. Despite the slow start, that trend is in full swing now, according to local providers.

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During the past year alone, a number of hospitals and health systems have discussed mergers and partnerships, several of which culminated in actual agreements.

In April 2010, four-hospital Piedmont Healthcare and 294-bed St. Joseph's Hospital, both based in Atlanta, entered into discussions to create a joint operating company that would be majority-owned and operated by Piedmont. Three months later, thwarted by the complexity of the deal, the two announced they had ended talks after failing to reach an agreement on how the arrangement would be structured.

Officials from St. Joseph's then began to discuss a similar arrangement with three-hospital Emory Healthcare, Atlanta, says Heather Dexter, St. Joseph's Hospital's interim chief operating officer. But the details of the proposed deal, which would allow St. Joseph's to remain Catholic, proved to be difficult to iron out.

“The complexity of the model reared its ugly head again,” Dexter says. The two providers shelved plans for the agreement, and St. Joseph's put the word out that it was open for acquisition. It wasn't long before Emory expressed interest in once again pursuing the joint-operating agreement.

“They figured out how to make it work within their system,” she adds.

The partnership, announced in March and which will give Emory a 51% ownership stake, is emblematic of the current sweeping small- and medium-sized Atlanta hospitals, Dexter says. That movement will only grow as the region's large systems—including Piedmont, Emory and five-hospital WellStar Health System, Marietta—extend their reach, she says.

“We think we will end up with four or five big systems down the road, and we wanted to be part of that,” Dexter says. “In the future, you'll need to be able to provide the full continuum of care for patients.”

St. Joseph's is not alone.

After the initial deal between Piedmont and St. Joseph's fell through last year, Piedmont entered into talks with Henry Medical Center, a 304-bed hospital in Stockbridge, Ga.

The two announced they had reached a partnership agreement in April 2011, and they are targeting completion by the end of the year. According to the terms, Henry Medical Center will continue to be owned by the local hospital authority. The hospital will become a subsidiary of Piedmont, per a long-term lease agreement, says Charlie Scott, Henry Medical Center's CEO.

The deal was a lifesaver for Henry Medical Center, which is one of the few independent, stand-alone hospitals in the Atlanta market and had been struggling financially for several years.

“We'd been in the red for some time and, try as we might, we could not make a real dent,” Scott says. “We were pretty much tapped in terms of capital and that was the real driver for us. We realized that we would increase our potential for long-term success if we partnered with a high-quality healthcare system with an excellent reputation.”

Henry Medical Center simply lacked the size and available resources to prepare for many of the changes that health reform was dictating, including greater physician-hospital integration and increased use of health information technology, he says.

“We think it's a win-win for both sides because the community still owns the hospital and will benefit from all that Piedmont can bring to the table,” Scott says.

Scott agrees with Dexter, of St. Joseph's, that the Atlanta market is behind other regions that have already experienced considerable consolidation.

“I suspect that we will see a lot more over the next five years,” Scott says. “We're still catching up here. I think there will be a shakeout that will bring about a handful of large, strong successful systems that have the infrastructure, the physician alignment vehicle and the depth of financial resources to be successful in the era of health reform.”


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