In an unusually dramatic shift for academic medicine, Baylor College of Medicine broke its long-standing affiliation with Houston's Methodist Hospital last week and signed a 50-year agreement to make St. Luke's Episcopal Health System its primary affiliate.
Admissions patterns are not expected to change overnight, however. Baylor and Methodist will continue to operate dozens of joint programs, and it's unclear what programs will be moved or created at St. Luke's under the new affiliation, or whether Baylor physicians will move their practices.
Financial terms of the new affiliation, including the subsidy St. Luke's will pay Baylor, were not disclosed.
"Major realignments are disruptive," said Robert Dickler, senior vice president of healthcare affairs at the Association of American Medical Colleges, who said it's been about a decade since the last major affiliation change. "It's a very complicated set of changes that usually take multiple years to fully consummate, if they are ever completely settled."
Methodist and Baylor temporarily renewed their 50-year affiliation agreement 18 months ago but were unable to negotiate another long-term arrangement, Baylor President Peter Traber said.
He added Baylor wanted more control of its clinical practice, and Methodist opposed the college's wish to build its own ambulatory-care center. Baylor now plans to open an ambulatory center by 2007.
"The majority of clinical research occurs in an outpatient setting, not in a hospital, so this will give us the opportunity to do more clinical research more effectively," Traber said.
Methodist President and Chief Executive Officer Ron Girotto, who declined to be interviewed, said in a written statement that Baylor rejected Methodist's proposal for a renewed affiliation agreement that included a new office building, expanded programs and a financial commitment of up to $75 million for the first year.
In a letter to physicians, Girotto said Methodist would proceed with a $370 million expansion announced in January, which includes an ambulatory clinic, as well as a new research institute. He said Methodist would consider affiliating with another medical school.
Martin Arrick, an analyst at Standard & Poor's, said the affiliation change will have no immediate ratings impact, although the near-term costs to St. Luke's are likely to outweigh the initial benefits. Methodist is rated AA, while St. Luke's is AA-.
Methodist has one of the strongest balance sheets in healthcare, with unrestricted cash and investments totaling nearly $2 billion as of Dec. 31, 2003, according to its audited financial statements, released last week. "They have a cushion to pause and consider their strategy," Arrick said.
St. Luke's Episcopal Hospital, the two-hospital system's flagship, receives roughly 1,000 of its 33,000 annual inpatient admissions from Baylor faculty, versus about 13,000 Baylor admissions at Methodist, St. Luke's in-terim President and CEO Jack Lynch said. He said he expects admissions to shift over a period of years as Baylor establishes more programs at St. Luke's.
Lynch, who is under consideration to be named St. Luke's permanent CEO, acknowledged that his institution's biggest challenge will be to lure Baylor physicians who have spent their careers at Methodist while maintaining its strong ties with independent physicians.
"This was not about who could produce the most money for Baylor," Lynch said. "What I will tell you is that in the last six to eight months we were working with Baylor, we have found our vision to be very much aligned. ... We felt this community deserved an environment where a major teaching hospital and a major medical school could interact effectively."