While Baylor Health Care System works to iron out issues surrounding its governance structure and possible sale, its two potential not-for-profit partners in the Dallas area agreed to merge without it.
Harris Methodist Health System and Presbyterian Healthcare System said they would sign a letter of intent in the next two months to form a holding company that would run the systems as a merged organization.
The merger of Harris Methodist and Presbyterian would create the largest not-for-profit system in the eight-county Dallas-Fort Worth market, with 11 hospitals and 22% market share. That would leave Baylor in the No. 2 spot, with eight owned or leased hospitals, five affiliated hospitals and 15% market share.
"This is an opportunity to create a regional system that responds to the needs of the community as well as the buyers of healthcare who want one large integrated system to deal with," said Douglas Hawthorne, president and chief executive officer of Presbyterian.
Combined, Fort Worth-based Harris Methodist and Dallas-based Presbyterian have $1.5 billion in assets. Each system would have equal representation on the new company's parent board.
Dallas-based Baylor initiated talks with both systems early last year but withdrew in the fall. "The systems decided to go ahead as a result of the (Baylor University Board of) Regents' decision to evaluate their options," said Brian Levinson, spokesman for Harris Methodist.
After Baylor backed out of the merger talks, Baylor's regents hired their own consultant to examine other options for the $1.2 billion system.
The regents began considering a merger or sale after the Baylor system's board told them last fall that its financial viability was threatened in the increasingly competitive Dallas market. The system's board opposes relinquishing control to another group.
Last week, the Baylor system and university regents took a step toward easing tensions. Both institutions agreed to study their "ongoing relationship," a statement said.
Presbyterian and Harris Methodist said they hope Baylor may reconsider joining their venture.
"We want to respond to the changes in the marketplace and continue to fulfill our mission in the years ahead," Levinson said.
Harris Methodist, which owns seven hospitals, had a net operating loss of $28.3 million on net patient revenues of $378.5 million in 1995, according to MODERN HEALTHCARE's 1996 Multi-unit Providers Survey. It has assets of $805.9 million.
Four-hospital Presbyterian had net operating income of $12.1 million on net revenues of $324.7 million in 1995. It has $726.2 million in assets.
If Baylor eventually hooks up with the Harris Methodist-Presbyterian system, it likely would have four votes on a 12-member board, Hawthorne said.