Three. Two. One. Could it mean a blastoff in hospital prices?
If all goes according to plan, the Lake Erie resort city of Sandusky, Ohio, will become a one-hospital town later this summer. That's when Firelands Regional Health System, which already owns two of the city's three hospitals, will complete its monopoly as the only acute-care hospital in Sandusky and in Erie County with the acquisition of the third, 170-bed Providence Hospital.
Some 16 years ago, all three hospitals were competitors. That changed in 1985, when Good Samaritan Hospital and Sandusky Memorial Hospital merged to form Firelands Community Hospital, now a 200-bed hospital operated by Firelands Regional. Since Good Samaritan had opened a new hospital in 1984, all of the acute-care services were consolidated there, while the former Memorial Hospital facility was used for physician offices, outpatient services, a drug and alcohol rehabilitation program and later a physical medicine and rehabilitation program. Both facilities are still operational.
Talks between Providence and Firelands Regional began in early May. The parties signed a definitive agreement June 1 and expect clearance from the Ohio attorney general by Aug. 1. If all goes well, the deal will go through that week.
Community shows confidence
Despite Firelands Regional's pending monopoly over acute-care services, some local businesses and health insurers didn't seem too concerned about the system using its market clout to arbitrarily raise prices.
John Moldovan, executive director of the Erie County Chamber of Commerce, said the business community in the city of 29,000 has confidence in Firelands.
"We're not sitting around gnashing our teeth wondering what we'll do about medical care in Sandusky, not a bit," Moldovan said. "But I don't expect to see dramatic price increases. Firelands' board of trustees is made up of community members who have medical bills. I think they will be judicious about any price increases."
William Schuchardt, M.D., a surgeon and president of 4,800-enrollee physician-owned Vantage Health Plan, refused to speculate on the market impact of the deal and its effect on local physicians and insurers. Vantage primarily contracts with Providence, but handles workers' compensation cases for Firelands as well. "I have no comment," Schuchardt said.
Hospital officials said Sandusky, a northern Ohio port city about 60 miles east of Toledo and best known for its Cedar Point amusement park, could no longer sustain both hospitals. Providence had lost money for several years.
Ron Parthemore, Firelands' vice president of planning and marketing, said there are four community hospitals within 20 miles of Sandusky, though he said Firelands does not view the hospitals as competitors.
Those hospitals are 33-bed H.B. Magruder Memorial Hospital in Port Clinton; 48-bed Bellevue (Ohio) Hospital; 121-bed Memorial Hospital in Fremont; and 134-bed Fisher-Titus Medical Center in Norwalk.
"We do not compete with them for their primary-care patients, and our specialists even perform clinics there," Parthemore said.
Parthemore said the nearest competitor is 282-bed Lorain Community/St. Joseph Regional Health Center-West Campus, about 25 miles away in Lorain. The facility is owned by Cincinnati-based Catholic Healthcare Partners.
Providence, which had been mildly profitable through most of the late 1990s, began losing money in 1999, when it lost $2.3 million on operations on net revenue of $50 million and suffered a $2 million net loss. In 2000, the spiral continued with the hospital losing $4.5 million on operations on net revenue of $46.4 million with a net loss of $4.2 million. The hospital's operating margins have not risen above 2.1% since 1995, when it earned $1.3 million on operations from net revenue of $42.7 million, a 3.2% operating margin, according to Providence officials.
Opposing fortunes
Firelands' star has risen as Providence's has fallen. Firelands earned an operating profit of $4.9 million on 2000 net revenue of $86.5 million and total net income of $16.1 million, according to Firelands Vice President and Chief Financial Officer Daniel Moncher.
Lawyer Edward Emerson of Shumaker, Loop & Kendrick, which represents Providence, conceded that the move to a single hospital raises antitrust issues.
"In this marketplace we had three hospitals and found it was increasingly difficult even for two to survive," Emerson said. "The impact of managed care on provider agreements and the tremendous requirements for capital to compete with hospitals outside the community and larger tertiary centers in Toledo and Cleveland made it hard for Providence to succeed. What you have is a changing dynamic. And you can't compete in this larger marketplace without consolidating services."
Only Cleveland-based University Hospitals Health System has established a beachhead in Sandusky, purchasing some physician offices. Parthemore said until an exclusive negotiating period between Providence and Toledo-based ProMedica Health System expired on April 30, there were rumors of ProMedica's entering the Sandusky market.
Terence Schuessler, vice president of system operations at Franciscan Services Corp., of Sylvania, Ohio, which owns Providence and five other hospitals, said the hospital will not be a Roman Catholic facility once Firelands Regional acquires it. But he said Franciscan Services will continue to operate a 138-bed nursing home, Providence Care Center, and a residential and assisted-living center, Commons of Providence, in Sandusky.
Providence had been negotiating since November 2000 with Toledo-based ProMedica, but those talks ended in April by mutual agreement, according to Providence's Schuessler, who refused to disclose the reason talks broke down.
Emerson said because the Firelands Regional-Providence deal flies beneath the minimum financial threshold of $50 million, the hospitals aren't required to file any premerger notification documents with the Federal Trade Commission for antitrust clearance and don't intend to. He said the hospitals voluntarily have notified the Ohio attorney general of the sale and provided the agency with copies of the definitive agreement.
Michael Gire, a lawyer with the Columbus law firm of Bricker & Eckler, representing Firelands, said the sale is structured as a "member substitution," similar to when for-profit companies purchase 100% of the stock in a company. In the not-for-profit world the ownership lies in the sponsoring body: The member who sponsors the hospital controls the corporation and the assets. The purchase price is undisclosed.
Gire said, at least in the near future, Providence will remain open as a hospital and will function as a Firelands campus.
Eric Hargrove, a spokesman for the Ohio attorney general's office, said his agency will investigate whether competition will significantly decrease from the deal and whether the deal will adversely affect consumers. Hargrove said the attorney general doesn't approve the final merger but allows it to proceed.
