“We didn't really see an answer in some of those historical transactions so we decided to create something unique,” said Barclay Berdan, CEO of Texas Health Resources.
The two provider organizations will be 50/50 partners in a new company known as Southwestern Health Resources. Berdan will co-chair the company along with UT Southwestern CEO Dr. Daniel Podolsky.
The joint operating agreement brings together UT Southwestern's William P. Clements Jr. University Hospital and Zale Lipshy University Hospital with Texas Health's Presbyterian Hospital. It also will combine about 3,000 physicians under one umbrella.
UT Southwestern had been exploring partnership options for more than two years, Podolsky said, but it wasn't seeking a financial lifeline. “This was not an issue of access to capital for us,” he said. “It's about delivering better care and being able to ensure our mission of education and research.”
To that end, Texas Health will commit additional funds, which Berdan estimated at “several millions of dollars” each year. The partners also will build a new center around population health research.
UT Southwestern reported adjusted income of $313.6 million on operating and non-operating revenues of $2.4 billion for its fiscal 2014, which ended Aug. 31. Its performance was ahead of budget. For fiscal 2013, it reported adjusted income of $194.3 million on operating and non-operating revenues of $2.1 billion.
Texas Health, meanwhile, has recovered from its brush with Ebola, which temporarily depressed volume at Presbyterian, which last October was the first U.S. hospital to diagnose an Ebola patient. Its larger challenges this year have been rising expenses and reduced funding from the Texas Medicaid waiver program.
For the first six months of the year, it reported an operating surplus of $89.3 million on $2 billion in revenue, compared with an operating surplus of $107.8 million on nearly $2 billion in revenue during the same period last year.
In addition to its financial and clinical aims, the partnership also better positions the two organizations to participate in risk-based contracts, building on their existing collaboration under the Medicare Shared Savings Program.
“We believe we have an outstanding organization that can operate as a narrow network,” Podolsky said. “We fully expect that risk-based contracts will be a bigger part of the business.”
The University of Texas' Board of Regents approved the deal Friday and the Southwestern Health Resources will be operational sometime in the first quarter of 2016.