Merger talks between Houston's two not-for-profit hospital giants, St. Luke's Episcopal Hospital and Methodist Hospital, have slowed, and St. Luke's is now discussing deals with other possible partners.
To ease St. Luke's ability to work with another partner, its owner, the Episcopal Diocese of Texas, was set to vote on an amendment last weekend that would allow the hospital to merge with an institution other than Methodist. Last year, the church organization approved St. Luke's decision to talk only with Methodist.
Also last week, John Burdine, M.D., Consolidations longtime chief executive officer of St. Luke's, announced his retirement, and Michael Jhin, the hospital's president, was given the additional title of CEO.
Jhin said Burdine's retirement was not related to the proposed Methodist-St. Luke's merger.
"We feel very strongly that the merger makes sense for Houston," Jhin said last week, noting that anticipated savings would amount to $100 million a year.
The hospitals are neighbors in the Texas Medical Center area just south of Houston. They have more than 2,000 licensed beds and $1 billion in assets.
However, Jhin acknowledged that talks had moved "slower than expected."
Sources questioned whether such a merger could work between two huge, complex institutions and their affiliated medical schools, Baylor College of Medicine and University of Texas medical school. At Methodist, the Baylor department chairs are the chiefs of services. At St. Luke's, those chiefs are appointed by Jhin after consultation with physicians.
However, Jhin said medical staff issues were not a reason for the slowdown in negotiations with Methodist.
Although Methodist is larger-it has 1,500 licensed beds-its position as the more profitable of the two hospitals appears to be slipping, which could be a factor in valuations in the merger.
Earnings at Methodist, which had been the nation's most profitable hospital in 1991, dropped to $10.8 million in 1993 compared with $54.7 million in 1992, according to HCIA, a Baltimore-based healthcare information company. Revenues were flat at $482 million.
In contrast, St. Luke's profits were up 34% in 1993 to $33.5 million. Revenues also were up 8% to $327 million.
Larry Mathis, president and CEO of Methodist Hospital System, said the two systems are working on a "modified proposal," and "that's what would be slowing things down." Methodist is not in formal talks with any other potential partner, he said. A new letter of intent with St. Luke's could be signed within two weeks, he added.
Although the hospital's profits dropped, the system's profits remain strong, Mathis said. The system, which includes two other hospitals, reported profits of $4.5 million in 1993 and $53 million in 1994, he said.