The whirlwind of hospital consolidation spinning through Texas hit Houston last week with the proposed mergerlike partnership between Memorial Hermann Healthcare System there and two-hospital Baptist Healthcare System, based in Beaumont, 90 miles away.
Under the proposed transaction, which is expected to close later this month, Memorial Hermann would manage 172-bed Baptist Hospital of Southeast Texas in Beaumont and 118-bed Baptist Hospital in Orange.
The management agreement is a first step toward a full-asset merger of the two systems later this year. Phasing in the consolidation will give the two systems more time to develop strategic and financial plans, said Dan Wilford, Memorial Hermann's president and chief executive officer.
Memorial Hermann owns or leases eight acute-care and two specialty hospitals in the Houston market. Baptist's two hospitals are east of Houston in a region called the Golden Triangle.
Merged, the 12-hospital system would serve an eight-county area, from Houston to the Louisiana border.
The agreement comes seven months after one of Memorial Hermann's chief competitors, Houston-based Sisters of Charity Health Care System, proposed merging with the San Antonio-based Incarnate Word Health System. That deal, which would create a 27-hospital system called Christus Health, is pending and was expected to be completed by the end of last month .
Another major player in the region is Columbia/HCA Healthcare Corp., which will split its three Golden Triangle hospitals from its 15 Houston-area hospitals as part of a spinoff planned for later this year.
Wilford said the eastern expansion is critical to the system's viability.
"I believe that there are soon going to be only four or five healthcare systems in south Texas, and we're going to be one of them," Wilford said.
Under the agreement, David Parmer will remain president and CEO of the Baptist system but will report to executives at Memorial Hermann.
Memorial Hermann will bring capital to the cash-strapped Baptist system. One of the first steps will be to develop OB/GYN and pediatrics services at the Beaumont hospital, Parmer said.
The affiliation will also give Baptist access to many more managed-care contracts.
Memorial Hermann plans to refinance some of Baptist's $35 million debt in about six months, Wilford said. The two systems will probably complete a full-asset merger then to make that transaction easier, he added.
Wilford said he also anticipates about $50 million in capital improvements to the Baptist hospitals over five years.
Parmer expressed no reservations about joining a system that includes Hermann, which has experienced numerous brushes with state and federal law enforcement agencies.
Hermann, which merged with Memorial Healthcare System in 1997, was plagued by scandals in the mid-1980s, when a former trustee and two former hospital employees were indicted on charges of financial wrongdoing at the hospital's trust fund.
More recently, in 1994, the hospital settled charges of wooing doctors with illegal incentives.