Three Arizona hospital systems have consolidated their home-care services as a possible prelude to a merger.
The systems are PMH Health Resources and Baptist Hospitals and Health Systems, both of Phoenix, and East Valley Regional Health System in Chandler. Combined, the systems own five hospitals in three cities with total annual patient revenues of about $560 million and nearly 4,000 employees.
Baptist, the largest of the three systems, also is acquiring a fourth hospital, 44-bed Payson (Ariz.) Regional Medical Center.
In a roundabout way, executives from two of the systems confirmed that a merger may be in the offing.
"I think it's fair to say that with all the mergers, consolidations and affiliation activity in Phoenix and the Southwest, and with institutions beginning to identify potential partners, it would be important and certainly timely for us to examine our options," said Reginald M. Ballantyne, president of PMH, which operates a 183-bed hospital in Phoenix.
"The three systems serve discrete communities, and I believe it is also perfectly fair to say the three chief executives respect each other," said Ballantyne, who's also chairman of the American Hospital Association's board of trustees. "And if you have all of that as a background, and need to identify partners, it makes perfect sense to proceed accordingly."
"There are no discussions right now regarding a merger, but anything is possible," said Kaylor M. Shemberger, president of East Valley, which owns 120-bed Chandler Regional Hospital.
Baptist executives did not return phone calls seeking comment.
Last month, the three systems merged their home-care businesses into a $10 million-a-year joint venture. They also are members of Arizona Healthcare Federation, an alliance of hospital operators that promotes joint ventures, and co-founders of an HMO, Premier Healthcare of Arizona.
In published reports, Baptist President and Chief Executive Officer Gerald Wissink has said talk of a merger is premature.
Yet a merger mania of sorts has been gripping Arizona in recent months. In late 1996, Phoenix-based Samaritan Health System, which operates six hospitals in Arizona, agreed to merge with San Francisco-based Catholic Healthcare West, which operates 493-bed St. Joseph's Hospital in Phoenix. Samaritan had been in talks with HealthPartners of Southern Arizona.
The same week the Samaritan deal was announced, two other Phoenix hospitals merged: 240-bed John C. Lincoln Hospital and Health Center and 97-bed Phoenix General Hospital and Medical Center.
Lest Phoenix-area providers think a merger is all wine and roses, Samaritan just took a $90.7 million writeoff in preparation for the deal, resulting in a $79 million loss for 1996. Included in the writeoff was $18 million for bad debt, $21 million to comply with accounting rules regarding devaluation of assets and $17 million for changes in accounting involving the financing of capital projects.
As a result, Moody's Investors Service downgraded $323 million of Samaritan's long-term bond debt from "A3" to "Baa1," which carries an uncertain investment rating.