If it completes two pending deals, Ardent Health Services, Nashville, will build an integrated system in Albuquerque that controls nearly 40% of the city's private acute-care and inpatient rehabilitation beds, a 167,700-member health plan and a multispecialty group practice with 255 physicians.
Ardent would also end up with a total of six acute-care hospitals and one rehabilitation hospital, up from its current two acute-care hospitals. The company also operates 22 behavioral facilities.
Last week, Ardent signed a definitive agreement to pay $235 million for Lovelace Health Systems, which includes a 191-bed hospital, the health plan and a group practice. The deal, previously reported in Modern Healthcare (June 17, p. 14), must be approved by New Mexico insurance regulators and federal antitrust regulators, starting with a premerger notification filing with the Federal Trade Commission, the company said. The filing had not been made as of last week. The deal could take four to six months to close, Ardent said.
The seller is insurer Cigna Corp., Philadelphia, which would continue to serve about 72,800 points-of-service, a preferred provider organization and indemnity plan members in Albuquerque. Ardent is buying only the 167,700-member HMO business that Cigna offers as the Lovelace Health Plan. The definitive agreement includes provisions in which Cigna would continue to sell some services to the Lovelace Health Plan, and the Ardent system would be open to Cigna's remaining members. Ardent also bought the rights to the name "Lovelace Health Systems" and plans to use it, Cigna said.
Lovelace builds on Ardent's first foray into Albuquerque, its $77 million deal to buy four-hospital St. Joseph Healthcare from Catholic Health Initiatives, Denver, announced in March. Ardent also has a definitive agreement with CHI, and the company has said the deal could close this month, although it declined to specify a closing date.
"Ardent's biggest challenge in coming to New Mexico is going to be its relationship with the state's major health plans," said James Hertel, publisher of managed-care newsletters in Arizona, Colorado and, later this summer, New Mexico. "Its acquisition of Cigna's commercial HMO, and the related Medicare and Medicaid HMOs, will provide it a major inroad into the market." Albuquerque is also served by health plans from Blue Cross and Blue Shield of New Mexico and Cimarron Health Plan, Hertel said.
The St. Joseph system, on its own, didn't have a strong market presence because it didn't have a managed-care plan to steer patients to it, Hertel said. He said he expects broader use of St. Joseph facilities by the Lovelace Health Plan members. The question, he added, will be whether Cigna's remaining members choose to use the new Ardent system or switch to other providers.
"It's our vision to combine the Lovelace and St. Joe's systems-all the parts," said David Vandewater, Ardent's president and chief executive officer. "We think it will bring more choice and more convenience through an expanded network, and we think that is going to be very important on a competitive basis."
The combined system-with 584 staffed beds, out of 1,491 total staffed beds in Albuquerque, a network of 14 clinics and the commercial Medicare and Medicaid HMOs-would rival the city's dominant player, Presbyterian Healthcare Services. Presbyterian's two Albuquerque hospitals are staffed for 530 beds, and its Presbyterian Health Plan has 330,000 members statewide, the largest plan in New Mexico. Presbyterian isn't sitting back and waiting for Ardent-it launched a new marketing campaign in May, including an ad that plays up its independent, not-for-profit status (June 17, p. 14).
While integrated systems have foundered all over the country, Vandewater said Albuquerque, where he met last week with Lovelace employees to discuss the sale, is definitely an exception. "They have a very integrated model. They have been successful," he said. "That is the only model that they've had here. They've done it for a long time."
Hertel said integration has worked better in New Mexico than in many other markets because market share is concentrated in the hands of a few competitors, and that concentration has allowed them to thrive. The state also has a history of large medical groups, and those are better able to work in an integrated system, he said.
As for Cigna, the sale of Lovelace removes the company completely from the provider business, said Marjorie O'Malley, senior vice president of Cigna HealthCare. "Our core competencies and emphasis is really on providing employee benefits through the workplace," O'Malley said. "Our goal was to find (a buyer) who was focused on the delivery of healthcare."
Lovelace also brought Cigna some unwanted publicity in March, when it was disclosed that Lovelace's Medicare cost reports from 1990 to 1999 were under scrutiny in the national investigation of a Medicare consulting firm. Cigna stock took a temporary hit on the news of the investigation, Hertel noted.
Vandewater said he was aware of the investigation, but was not privy to any settlement terms or negotiations. Lovelace spokeswoman Anne Monson said the lawsuit "has no impact on this transaction" but declined further comment on it.
The sale of Lovelace prompted its CEO, Martin Hickey, M.D., to resign after five years at the helm of the system. Hickey, 53, said the sale marked a good time for him take time off, about six months, but he plans to resume his career as a physician executive in 2003. Hickey said Lovelace has kept up with medical technology investments but could use an upgrade for its information systems to coordinate clinical and financial information.