In a similar vein, Windber (Pa.) Medical Center recently rejected a push for greater integration of five-hospital Conemaugh Health System, based in Johnstown, Pa.
The 57-bed hospitals governing board on Feb. 7 voted down a plan to centralize Conemaughs strategic planning and give the systems president oversight of Windber Medical Centers chief executive, rather than the hospitals board. Nicholas Jacobs, Windber Medical Centers president and CEO, said the vote leaves the hospital inside the system, but shut out of strategic decisions. Windber cannot exit Conemaugh and now faces the awkward possibility it will compete with its larger affiliate. Theres no out clause anywherefor either side, he said.
Windbers board joined Conemaugh for the benefits of a system but determined to keep power over the hospitals future. We represent a $26 million payroll to our community, he said. The board members believe they have a fiduciary responsibility to have some input in the hospitals existence. How the vote will play out wont be known until Conemaughs board meets in late February. Conemaugh did not respond to a request for comment. We can only hope that (Windbers board) made the right decision, Jacobs said.
Competition and capital drove recent diverse deals for hospitals to affiliate with systems in Ohio, North Carolina and Texas. Executives at the independent hospitals cited growtheither a need to finance new facilities or demand for a greater breadth of specialties and servicesas strong motivators to align the systems.
Robinson Memorial Hospital, owned by Portage County, Ohio, hammered out a complex deal with an encroaching rival, Summa Health System, which went into effect Jan. 1.
Stephen Colecchi, Robinsons president and CEO since 1994, said the hospitals increasingly competitive and consolidated market threatened the long-term survival of the Ravenna, Ohio-based hospital. The 118-bed hospital faced the Cleveland Clinic eating into its market from the north and Akron, Ohio-based Summas advance from the west, he said. Portage Countys residents are better off than Ohios as a whole, though the countys population aged and declined from 2000-05 while Ohio had modest population growth, the most recent federal estimates show.
Under law, Robinson cannot sell or merge its assets with a larger system, so officials drafted a deal to allow county ownership within a newly formed not-for-profit joint venture. The seven-member board will include four Summa officers and three from Robinson, but will require a supermajority vote to change the publicly owned hospitals operations, said Tom Strauss, president and CEO of three-hospital Summa.
Colecchi said group purchasing with Summa will save Robinson an estimated $1 million annually, although without a merger, the public hospital cannot look to Summa for capital. Perhaps most importantly, the deal will prevent costly duplication that comes when rivals compete for market share, he said.
One of our key strategic priorities is regional development, Strauss said. Summa targeted Portage County for expansion to meet consumer demand and to keep up with the growth of its health plan into a market where Summa lacked clinics and provider contracts, he said. Now Summa will jointly expand with Robinson, for example, scrapping a planned fitness and diagnostic center in Kent, Ohio, and instead building its fitness center adjacent to Robinsons imaging center there.
In Texas, 85-bed Wise Regional Health System signed a five-year agreement with Baylor Health Care System, Dallas, in part, to gain access to the 11-hospital systems physician recruiting resources. Steve Summers, administrator of not-for-profit Wise Regional, said in an e-mail the hospitals leadership has always been very independently minded, but the communitys growth and complexity of healthcare issues we face today dictate this alternative course in an affiliation for its future. The agreement, effective Feb. 1, includes management consulting as well as group purchasing.
NorthEast Medical Center, which saw revenue and net income spike 19.7% and 41.5%, respectively, between fiscal 2003 and fiscal 2005, unveiled plans Feb. 8 to merge its assets into Carolinas HealthCare System, which owns or manages 19 hospitals.
Carol Lovin, NorthEasts vice strategic planning and marketing development, said financial necessity did not drive NorthEast to seek shelter in an acquisition. NorthEast reported income of $42 million off revenue of $405.6 million for the year ended Sept. 30, 2005, the most recent figures publicly available.
Instead, the deal will provide capital and expertise for the hospitals ambitious growth plan. The Concord N.C.-based 365-bed hospital, which owns more than two dozen outpatient centers, recently finished construction of a $10.3 million, 33-bed childrens hospital. Future plans call for the campus to expand into a tertiary-care center and, without help, the price tag would likely force officials to pick and choose among projects, despite a strong balance sheet, Lovin said. Its still hard to do alone, she said. NorthEast officials felt we can do this best and better, and probably a little faster, with the help of a good partner.
The deal, expected to close in July, is Carolinas second acquisition in the past six months. In September, the Charlotte, N.C.-based system said it agreed to invest $100 million to replace an 87-bed hospital in Lincolnton, N.C., and ancillary services in exchange for the county-owned hospitals assets (Oct. 23, 2006, p. 6). The Lincolnton hospital, formerly the Lincoln Medical Center, is now called Carolinas Medical Center-Lincoln.
More may follow, said Joe Piemont, Carolinas executive vice president of strategic services. Independent hospitals face increasingly bleak economic conditions as Congress grapples with curbing the federal budget deficit and growing numbers of patients who lack insurance or do not pay, he said.
Carolinas sees potential for additional deals as solo hospitals consider an affiliation or merger as one way to brace against the industrys volatility, he said. Were out there and people know were an alternative, he said. Not every deal ends in an acquisition, he said, though thats frequently the case when prospective partners seek financing for construction. Carolinas owns nine hospitals, leases four and manages six. Carolinas typically seeks more control when prospective partners want financing for capital projects, he said. Capital must be used responsibly and in the systems best interest, he said, so strategic priorities for subsidiaries become really indistinguishable from Carolinas goals, he said.
Less-involved management agreements give stand-alone hospitals access to Carolinas executive expertise or buying power, which can cut costs, he said. The system sizes up management deals for more than their revenue; partners must be a strategic and cultural fit, he said. We are not trying to be hired guns, he said.