That's how the "go it alone" strategy often is described when hospital trustees and chief executives explain their merger and acquisition negotiations.
Typically, executives outline their choices as:
Option A: Sell to an investor-owned chain.
Option B: Merge with a local tax-exempt system.
Option C: Stay independent.
More often than not Option C is referred to in a somewhat disparaging tone, as if that would be a bizarre choice for any hospital in the 1990s. After all, the mantra of this age seems to be that all hospitals must align.
Yet so far in 1996 there have been a handful of holdouts: Landmark Medical Center, Woonsocket, R.I.; Woman's Hospital in Baton Rouge, La.; University of Alabama Hospital, Birmingham; and University Medical Center, Lubbock, Texas, all have turned their backs on possible buyout offers.
None of these systems was willing to take the big step into for-profit medicine, and the cultural and financial changes it may impose on the institution. In addition, the hospitals weren't in financial crisis, a condition that might prompt them to act quickly. Indeed, time may be on their side.
One expert believes the number of hospitals that reject merger and acquisition offers is probably quite high. "I'm familiar with numerous discussions that never hit the press," said Chris Thompkins, president of Enterprise Group, a New York-based financial advisory firm that works with many hospitals in the Southeast. "As many say `no' as say `yes,"' Thompkins said.
Two of the recent holdouts are university hospitals, where merger discussions are more tangled than in a typical tax-exempt hospital. Those hospitals always are intertwined with complex physician and state government relationships. And the tenuous future of Medicare funding for medical education and research has prompted many university hospitals to look for partners.
Yet despite the gloomy prospects offered for teaching hospitals, the top executives of University of Alabama and University Medical Center said they believed their institutions could increase in value by staying independent and through internal restructuring.
Both systems are financially sound. Although UAB is substantially larger than University Medical Center, the Lubbock hospital generates more profits, $18.6 million vs. $16.2 million in 1994 (See chart, p. 102).
Even so, UAB's reputation, which would be a strong factor in valuation, surpasses that of the Lubbock facility. The 783-bed hospital is considered the "pride of Alabama," said Michael Geheb, M.D., director of UAB's health systems. Although UAB never actually took bids, officials there did talk with five potential partners-four of them investor-owned systems-about possibly leasing or selling 12 medical buildings.
However, officials found that "our value was going up as an integrated system," Geheb said, noting the hospital's integration with some 700 physicians.
However, he acknowledged that hospital executives must work closer with physicians to lower costs at the system level. "Costs are largely driven by the physician's pen," he noted, adding that selling the hospital may have "interrupted the ability to get physicians to control their pens."
Although gaining that control will be a challenge for the system, it's something university officials didn't want to relinquish to an outside company, Geheb said.
Talking to the top investor-owned chains, Geheb said he realized "none of them manage an institution this complex."
In addition, there was no financial crisis to spur a sale. UAB is among the financial elite in hospital circles. Moody's Investors Service, a New York-based credit-rating agency, this month confirmed UAB's creditworthiness with its highest bond rating of Aa. The hospital has a low debt load, and patient days actually edged up 4% in 1995 to 226,775, Moody's reported.
University Medical Center is financially strong as well and turned its back on acquisition offers of $40 million to $80 million.
That was the range of bids the public hospital received from investor-owned chains Columbia/HCA Healthcare Corp., OrNda HealthCorp and Universal Health Services. In addition, another tax-exempt hospital in Lubbock, St. Mary of the Plains Hospital, offered to lease the hospital but dropped out after agreeing to merge with Methodist Hospital, the city's largest.
"It came down to a question of continuing the missions of the hospital," said James Courtney, University Medical Center's president and chief executive officer. He acknowledged the decision meant turning down "very substantial offers."
He declined to give a breakdown of the bids, but they were reported in the hometown paper, the Lubbock Avalanche-Journal. According to the newspaper, the three investor-owned chains offered similar per-year dollar amounts-about $4 million a year over various time periods. For example, Columbia offered $40 million over nine years, which amounted to the highest annual bid of $4.4 million a year.
"It would be hard to give it over to somebody else and let them deal with the changes," Courtney said.
Like UAB, University Medical Center executives know it's now up to them to make the changes needed to remain competitive.
The hospital's advisers, Northfield, Ill.-based Kaufman Hall & Associates, "projected that if we stayed just the way we were and didn't change, our value would decrease over time," Courtney said. But he doesn't plan on that happening.
University Medical Center plans to strengthen relationships with managed-care payers, surrounding rural hospitals and other hospitals in western Texas.
He doesn't anticipate any layoffs but noted that one of the concerns about a possible sale was the future of the hospital's 1,500 employees.
Unlike UAB, which receives no direct tax support, University Medical Center receives about
$6 million a year through county taxes. But that accounts for only 5% of the hospital's operating budget.
Although local government officials often are interested in shedding entities that are tax liabilities, Courtney said that wasn't a big concern with Lubbock County commissioners.
"They weren't nearly as concerned with lowering taxes as our other missions," Courtney said, mentioning indigent care and teaching medical students through an affiliation with Texas Tech University.