Barnabas and Robert Wood Johnson sign deal to form biggest New Jersey health system

(Story updated at 3 p.m. ET)

Barnabas Health and Robert Wood Johnson Health System plan to combine their 11 hospitals to form New Jersey's largest health system. Along with another pending deal, it would consolidate the majority of hospital care in central New Jersey in two health systems.

Barnabas, a seven-hospital system based in West Orange, N.J., and Robert Wood Johnson, a New Brunswick, N.J.-based system with four hospitals, have signed an agreement that would create a system with combined annual operating revenue of $4.5 billion and 30,000 employees, the organizations said in a joint news release. Barnabas acquired Jersey City Medical Center in June 2014.

The New Jersey hospital market is undergoing a rush of consolidation as hospitals nationwide enter into merger and acquisition deals. The activity is not limited to hospital operators as the nation's largest health insurers have proposed combinations that would create insurance giants.

The proposed RWJ Barnabas Health System would have nearly one-third of the central region's market share, according to an analysis by insurance expert Allan Baumgarten.

The merger of Hackensack University Health Network and Meridian Health, which reached a definitive agreement in May, would create a nine-hospital system with $3.1 billion in operating revenue and 26.3% of the central New Jersey market.

Other deals are pending in New Jersey as well. Geisinger Health System, for example, has an agreement to acquire AtlantiCare. Meridian Health has a deal pending to acquire Raritan Bay Medical Center. The Atlantic Health System in Morristown, N.J., acquired Chilton Hospital in 2014 and has a deal pending for Hackettstown Regional Medical Center.

But Barnabas Health CEO Barry Ostrowsky said the frenzy of consolidation isn't what's driving his system to join hands with Robert Wood Johnson.

“I don't know that this was a reaction to what's going on,” Ostrowsky said. The size and broader geographic reach, he said, will create new opportunities and help the merged organization manage population health and adapt to new payment models. Those opportunities will not, however, immediately include establishing its own licensed health plan, a strategy an increasing number of large hospital systems are pursuing as they beef up their ability to manage financial risk for patients.

“I don't think we necessarily have to have a health plan or a licensed health insurance product provided we build the right partnerships with existing insurance companies,” Ostrowsky said.

The deal must win regulatory approval and is expected to close next year.

The partners plan to combine their existing accountable care organizations. They also plan to expand services that are more robust at one system.

Barnabas Health, for example, has developed its behavioral health services more extensively than the Robert Wood Johnson system, said Stephen Jones, president and CEO of Robert Wood Johnson Health System and its flagship hospital, Robert Wood Johnson University Hospital.

Ostrowsky would serve as president and CEO of the combined system, which would be named RWJ Barnabas Health. Jones would be named chief academic officer of the newly created system.