More than two years after announcing plans to merge, the two largest hospitals in Lubbock, Texas, have finally inked the deal.
The merger brings together Lubbock Methodist Hospital System, with its flagship 520-bed Methodist Hospital in Lubbock, and 410-bed St. Mary of the Plains Hospital, also in Lubbock. Aside from those hospitals, there are three other acute-care facilities in Lubbock.
Final documents consummating the merger were signed June 10, and the new organization is called Covenant Health System.
The two members of the Covenant parent company are Lubbock Methodist and St. Joseph Health System, the 14-hospital system in Orange, Calif., that owns St. Mary.
The Federal Trade Commission cleared the merger last year but not before the two hospitals cut a deal with the agency under which they promised to unravel their physician-hospital organizations in Texas.
"That's what we did," said Charley Trimble, president and chief executive officer of Covenant. Trimble had been president and CEO of St. Mary.
The FTC investigated the Lubbock merger for nearly a year before working out the agreement with the hospitals (July 21, 1997, p. 20).
The deal means the two hospitals no longer will represent about 600 doctors or other providers in negotiations with payers and employers in Texas. Covenant still will be able to negotiate on behalf of physicians in New Mexico.
"Since last summer, we've really been working in earnest to get it done," said George McCleskey, Covenant's executive vice president. He had been president and CEO of Methodist.
The two hospitals announced their intent to merge in early 1996. Trimble said it wasn't until after the FTC gave the go-head that the heavy due diligence on the deal could be done.
To clear another hurdle, Methodist last summer also agreed to pay an undisclosed sum to settle a dispute with the Internal Revenue Service over its tax-exempt status. The problem centered around a lease of a medical office building and Methodist's purchase of a helicopter ambulance service (July 21, 1997, p. 20).
Predictions that the merger could be completed before this summer were off the mark.
"Probably when we talked before it was just a function of our enthusiasm of thinking we could get something like that done sooner rather than later," Trimble said. "It's just a very complicated series of negotiations."
McCleskey said the most difficult part of the deal has been merging the two integrated delivery systems.
Besides Methodist, St. Mary and 65-bed Methodist Children's Hospital in Lubbock, the new Covenant system includes more than two dozen leased, managed or affiliated hospitals, as well as two physician groups and two HMOs that span from west Texas to eastern New Mexico, McCleskey said.
Covenant will have about 4,400 full-time employees and net operating revenues of more than $600 million.
"It's quite a relief," McCleskey said of the completed deal.