A cross-state affiliation linking 34 hospitals in New York and New Jersey gives the two systems a platform for direct contracting.
The deal is one of three major hospital system deals unveiled in New England last week (See stories, this page and p. 15).
Local observers say the "strategic alliance" announced last week by New York's Mount Sinai Health System and Livingston, N.J.-based Saint Barnabas Health Care System moves the two giants a step closer to competing with area HMOs.
"I think this might be an early step to a market situation where we will start to see employers contracting with (healthcare) networks," said Tom Billet, a vice president and national practice leader with Medstat Group's healthcare consulting practice in Stamford, Conn.
Larger employers in the region have tended to avoid local healthcare systems because they lack broad geographic coverage, said Don Gasparro, a managing director at Apex Management Group in Princeton, N.J. But once providers combine their networks and start offering insurance products at competitive prices, they'll make inroads with regional employers, he said.
By and large, networking activity in the New York-New Jersey market has consisted of hospitals aligning with other hospitals or individual networks acquiring or affiliating with other hospitals. In recent years, both Mount Sinai and Saint Barnabas have assembled broad networks that way. But theirs is the first cross-state collaboration of one network with another.
"This relationship is fundamentally different, and it represents the beginning of the next phase for the remodeling of healthcare delivery in the New York marketplace," said John W. Rowe, M.D., president of Mount Sinai's hospital and medical school.
System executives said no regulatory approvals are required because their alliance doesn't involve a merger of assets, a change in governance structure or the creation of a new corporate organization. Executives said they have no intention of merging the networks, yet they wouldn't rule out that possibility in the future.
Last week's agreement calls for development of joint clinical programs and managed-care contracting, although few specifics were released.
The idea is to "leave all of the options open for our system," said Ronald J. Del Mauro, Saint Barnabas' president and chief executive officer.
One option is the joint creation of managed-care products. "We're not sure which ones yet, but (one example is) managed Medicare," Rowe said. Mount Sinai is known regionally for its work in geriatric care.
The initiative also may involve direct contracting with employers. "Sure," Rowe acknowledged, "I think that might be one of the products that we would want to position ourselves for." He said an important feature of the alliance is the broad geographic coverage Mount Sinai and Saint Barnabas can offer regional employers.
Having a network that crosses state boundaries to cover an entire metropolitan area is a basic building block in developing a provider-sponsored network, Billet said.
"All the managed-care plans have that and have had it for years," he said. "It's a `gotta have.'*" In fact, a complete network should also include Connecticut, he said.
The deal also seals an academic affiliation agreement announced last year (Nov. 11, 1996, p. 22). Under the agreement, Mount Sinai School of Medicine becomes the academic affiliate of Newark (N.J.) Beth Israel Medical Center and Saint Barnabas Medical Center in Livingston, and a member of Saint Barnabas Health Care System.