Finley Hospital, one of two Dubuque, Iowa, hospitals previously embroiled in a federal antitrust lawsuit, last week agreed to merge with six-hospital Iowa Health System, the largest provider in the state.
A final merger agreement and federal antitrust filings are being drafted. Executives said they hope to complete the deal in late July.
Finley acknowledged talks with Des Moines-based IHS in January-one week after it called off its proposed mergerlike partnership with Dubuque's only other hospital, 415-bed Mercy Health Center (Jan. 27, p. 17).
The U.S. Justice Department had challenged the deal between Finley and Mercy, and the hospitals won the first round in U.S. District Court in 1995. The 8th U.S. Circuit Court of Appeals in St. Louis heard the government's appeal last fall, but before the appellate court rendered its decision, 158-bed Finley pulled out of the deal.
Finley Chief Executive Officer Kevin Rogols said the deal had started to make less sense and he didn't want to continue the legal battle.
Still, Finley had to become part of a larger system, Rogols said. The Iowa Medicaid program seems very likely to expand its statewide managed-care initiatives, and Medicare HMOs also seem likely in Iowa, he said. "Little-old Finley Hospital won't be at the table by itself, but Iowa Health System will," he said.
Meanwhile, IHS Vice President Jim Zahnd said the addition of Finley enhances the IHS statewide network, but the system still will need to fill service holes elsewhere.
If the deal is completed, IHS would become the sole corporate member of Finley. In turn, Finley would name one member to the IHS system board, then to be made up of 16 people.
The Finley board will retain veto power over decisions regarding its services, tax-exempt status and disposition of assets, Rogols said. It also will have the right to veto deals between IHS and other systems, he said. Rogols will stay on as Finley's head.
Finley projects 1997 earnings of $3.9 million on net patient revenues of $47.6 million. IHS earned $19.3 million on net patient revenues of $640 million in 1996. Its assets will exceed $900 million following the Finley acquisition.
Meanwhile, a spokesman for Mercy Health System of Farmington Hills, Mich., which owns the spurned Mercy in Dubuque and four other Iowa hospitals, said it is just weeks away from completing some key deals to expand its Iowa presence. He declined to disclose details of any pending transactions.