Regional News/Northeast: Eastern Maine Healthcare to buy Portland's Mercy Hospital, and other news

PORTLAND, Maine—Eastern Maine Healthcare Systems signed a definitive agreement to acquire Mercy Hospital, a 168-bed hospital in Portland, that is part of Catholic Health East. As part of the deal, EMHS will acquire Mercy and its service units, including VNA Home Health & Hospice in South Portland. EMHS, based in Brewer, owns seven hospitals and is the second largest health system in Maine based on bed count. The organizations announced plans to pursue a deal in December. Four months earlier, Mercy had entered into talks with Steward Health Care System, the Boston-based for-profit health system, but the negotiations later fell through. “EMHS supports our mission and our identity as a Catholic healthcare system,” Eileen Skinner, Mercy's president and CEO, said in a news release. “We look forward to continuing to work with our EMHS colleagues through the approval process and the eventual integration of Mercy into EMHS.” Financial terms of the agreement were not disclosed. However, an EMHS spokeswoman said the system is “committed to investing in necessary capital improvements at Mercy.” Catholic Health East is set to merge with Trinity Health in a deal that will combine two of the largest Catholic health systems in the U.S. Mercy Hospital has been considered a challenge for Catholic Health East and had reported large operating losses in fiscal 2011 and 2010, according to a Moody's Investors Service ratings report from June 2012. The deal is expected to close in the second half of this year.

—Jaimy Lee

WEST CHESTER, Pa.—Chester County Hospital and Health System said it signed a nonbinding letter of intent to “join” the University of Pennsylvania Health System, Philadelphia. Spokeswomen for Chester County Hospital and the University of Pennsylvania Health System declined interview requests. Susan Phillips, senior vice president of the University of Pennsylvania Health System, declined to say if talks included an acquisition of the 220-bed West Chester, Pa.-based hospital by the university health system. “Given that due diligence is now in process, and the confidential nature of the letter of intent, we will have no further comment at this time,” she said in an e-mail. Chester County Hospital reported an operating loss of $2.1 million on revenue of $293.4 million in the year ended last June. That's compared with a $10.9 million operating gain on revenue of $291 million the prior year. The University of Pennsylvania Health System finished its fiscal year last June with operating income of $217.2 million on revenue of $3.6 billion. Chester County Hospital's board of directors said in a statement last August that “the rapidly changing landscape and the increasing demands placed upon the healthcare industry are causing many independent hospitals and health systems across the country to consider new options and models of care.” The board approved a committee to “evaluate strategic corporate partnerships,” according to the statement. The prospective partners expect a deal, which must undergo regulatory review, to close this spring, according to the Chester County Hospital and Health System website.

—Melanie Evans

PITTSBURGH—Highmark plans to buy out bondholders of the financially distressed West Penn Allegheny Health System for 87.5 cents on the dollar to salvage an acquisition deal. Highmark reached the agreement in talks with five major bondholders for $726 million of the health system's outstanding debt. The insurer and health system, both based in Pittsburgh, are also finishing negotiations to amend their acquisition agreement, which will be submitted to state insurance regulators. Highmark's spokesman declined to comment, but in a news release officials said the deal would avoid the courts, cut West Penn Allegheny's debt and strengthen the system's balance sheet. Officials are in talks over final terms, which would require approval from bondholders with at least 73.5% of the outstanding bonds. Highmark's acquisition has been closely watched nationally as one of a growing number of deals among insurers, medical groups and hospitals. West Penn Allegheny agreed to an acquisition by Highmark in 2011 as the system struggled with ongoing operating losses and significant debt—the system borrowed $752 million in June 2007, at the tail of the credit bubble that fueled easy access to cheap debt and ended with the Great Recession. West Penn Allegheny unsuccessfully tried to break off the acquisition last fall, saying Highmark tried to compel the system to reorganize under bankruptcy as a new condition of the deal. Meanwhile, West Penn Allegheny's finances continued to deteriorate. The system lost $112.5 million on $1.6 billion in revenue for the year that ended last June.

—Melanie Evans

NEW YORK—The U.S. Justice Department's antitrust division said it will not challenge the Greater New York Hospital Association's proposed program that would reward physicians at member hospitals with a share of savings achieved by using resources more efficiently. The GNYHA submitted a business review request in August for the voluntary gain-sharing program, which will involve commercial health insurance and Medicare and Medicaid managed-care products. The Justice Department said in a Jan. 16 letter that it doesn't intend to challenge the program because the hospitals will not exchange confidential and competitive information. In addition, each participating hospital will be individually responsible for setting physician gain-sharing payments. “Based on GNYHA's representations, the proposed information sharing program is unlikely to facilitate collusion or otherwise raise competitive concerns,” Bill Baer, assistant attorney general for the Justice Department's antitrust division, wrote in the letter. The program will use a third-party contractor to calculate a “best-practice norm” for certain in-patient treatments or procedures. That data will be used to measure physician performance. A physician who meets hospital-established quality standards while reducing costs could receive a share of the hospital's savings. Eleven of the association's roughly 100 member hospitals in New York have registered for the program, according to the letter. A GNYHA spokesman said the program is not connected to GNYHA Ventures, the association's for-profit business that includes group-purchasing services. Additional information about the program was not immediately available.

—Jaimy Lee