Healthcare Business News

Orlando Health bucks merger trend, will go it alone

By Bob Herman
Posted: June 25, 2014 - 2:00 pm ET

While large regional and national healthcare systems continue to look for acquisition targets, one system in Florida that has gotten its financial house in order has opted to go it alone, at least for the time being.

Orlando (Fla.) Health decided on Tuesday not to merge or affiliate with another system after several months of evaluation. The system lost more than $9.5 million from operations in fiscal 2013, which ended Sept. 30. Orlando Health has since posted a $26.6 million operating surplus in the quarter ended March 31 (PDF). And in the first six months of fiscal 2014, the system tallied a $57.5 million operating surplus compared with a $2.4 million loss in the same period a year ago.

The $1.9 billion, not-for-profit system had hired consulting firm Kaufman Hall this year to evaluate a “full range of partnerships,” Dianna Morgan, Orlando Health's board chair, said in an interview. Options included everything from a looser clinical partnership, similar to what the system already has with the University of Florida Health in Gainesville, to a full-scale merger.

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Orlando Health looked at eight to 12 organizations, which included regional systems and national chains, Morgan said. Because of confidentially agreements, Morgan could not disclose the names. It's unlikely in-town competitor Florida Hospital was part of the negotiations, however, because the two systems combined control about 87% of inpatient admissions in Orlando's tri-county area.

Orlando Health ultimately decided to scrap its plan and remain independent as its financial position improved.

“I think the process is very similar to what large systems across the country are doing,” Morgan said. “We came out of the process with a new appreciation for our own organizational competencies and strengths.”

The system has improved its revenues with a combination of new patient growth from a partnership and from a purchased physician practice. On the expense side, it's cut staff and taken a sharp pencil to other costs.

The turnaround primarily stemmed from increasing alignment with area physicians, Morgan said. The partnership with UF Health, for example, has grown Orlando Health's volumes and revenue, particularly within the oncology and neurosurgery service lines, she said. Net patient service revenue rose 6.4% in the most recent quarter.

The health system also started to realize gains from its $43 million acquisition of Physician Associates, a practice consisting of 90 primary-care physicians and obstetricians. The deal took effect Jan. 1, 2013. Orlando Health expects to continue this strategy.

“It wouldn't surprise me if there were additional physician acquisitions,” Morgan said. “We've tried to be flexible in the model.”

Orlando Health has laid off hundreds of employees as part of an aggressive expense reduction plan, starting in 2012, but Morgan said most of the labor savings have come through attrition.

While its financials are looking stronger, the safety net system still faces several hurdles, however, said Michael Carroll, managing director of TriBrook Healthcare Consultants, a Clearwater, Fla.-based consulting firm. Florida's decision not to expand Medicaid will challenge the organization because 20% of its gross charges go to Medicaid. Orlando Health and other Florida providers also will have to increasingly duke it out with private insurers for Medicaid reimbursement after the state approved a Medicaid managed care system last year.

“I wouldn't say (the system's decision not to merge) is set in stone,” Carroll said. “That may be re-evaluated in light of the clearly unsettled future that lies ahead for all hospitals as we move into a new era of value versus volume.”

Orlando Health also announced it started a national search for a new CEO. Dr. Jamal Hakim, a practicing anesthesiologist, has served as interim CEO since September 2013, when the board fired Sherrie Sitarik. Dr. Hakim was Orlando Health's chief quality officer. When the board tapped him as the interim leader, Morgan said she and other members knew he was not interested in becoming the permanent CEO, “but he was absolutely the right leader to lead us through this transition.”

Follow Bob Herman on Twitter: @MHbherman

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