Hospital consolidation gains speed in Atlanta

Hospital systems in and around Atlanta are now moving swiftly and far from their traditional territories to consolidate a market that has been slow to consolidate.

Explosive population growth has kept hospitals busy and somewhat insulated from competitive pressures felt sooner in other markets. Since 1990, the number of people living in the metropolitan area has grown more than 80% to more than 5.6 million.

But late in 2015, WellStar Health System of Marietta, Ga., ventured deep into Atlanta to buy five hospitals from Tenet Healthcare Corp. in a blockbuster deal worth $661 million.

Before that deal even closes in 2016, doubling the size of WellStar, the system expects to finalize a partnership with West Georgia Health, a hospital and system in LaGrange, Ga., that is 60 miles from Atlanta.

Piedmont Healthcare of Atlanta also is branching out far beyond the city. The six-hospital not-for-profit system is exploring a merger with Athens (Ga.) Regional Health System 70 miles from Atlanta after just completing a tie-up with community hospital Newton Medical Center in Covington.

And incoming Emory Healthcare CEO Dr. Jonathan Lewin pledges to expand the delivery system of the academic healthcare giant in Atlanta with or without a merger.

All this is because changes in the business and policy landscape are starting to catch up with Atlanta-area providers and across the Southeast, said Craig Savage, a longtime healthcare consultant in Durham, N.C., who practiced for many years in Atlanta.

New regulations, reimbursement changes that reward quality of care over quantity of services, patient safety, technology expenses and a host of other issues are prompting the pace of consolidation in Georgia, Savage said.

Hospitals are hustling to improve economies of scale in purchasing and to spread best clinical and business practices across locations.

Or, as WellStar CEO Candice Saunders put it in an interview, “It's not about getting bigger, it's about getting better.”

Savage notes that in Atlanta, as elsewhere, it remains to be seen whether putting hospitals and clinics together will result in lower prices for consumers. “I'm not sure that's been borne out,” he said.

But Piedmont and WellStar leaders say they are ranging beyond their home markets not for patients to feed their facilities but to create strong self-contained hubs with new capital and expertise.

Piedmont CEO Kevin Brown said in an interview that the system's mergers allow for patient care “close to home with the efficiencies of scale.” Piedmont had fiscal 2015 revenue of $1.86 billion.

In Athens Regional, a system with annual revenue of about $500 million, Piedmont would be absorbing the second-largest employer in the area behind only the University of Georgia, said Athens Regional CEO Dr. Charles Peck.

Even with its size and market dominance in Athens, the system is stretched for capital for facilities, medical technology and information technology infrastructure expected to exceed $100 million over the next three to four years, Peck said.

Facing that and a near mutiny this spring by doctors over the clunky roll out of a new electronic health-record system—a launch that claimed the job of previous CEO James Thaw—Athens decided to seek a partner.

Brown said Piedmont would operate Athens as a hub and help identify opportunities for clinics and business practices without impinging on the strong clinical care that already exists there.

In the past 18 months, Piedmont has cut $166 million in costs from its system without cutting staff. It has been accomplished, Brown said, with measures such as settling on four or five med-surg items in surgery instead of 10. And a new EHR system across Piedmont's hospitals and clinics allows clinicians to work more efficiently, he said.

WellStar, likewise, intends to apply its best practices to the Tenet hospitals it is buying in Atlanta, Saunders said.

Around Marietta, WellStar has established an accountable care organization that participates in the Medicare Shared Savings Program. The model demands a comprehensive delivery network buttressed by elaborate data tracking and quality measures aimed at getting patients the right level of care in the right setting.

WellStar will be able to overlay that approach in Atlanta to position its newly acquired hospitals and clinics for risk-based contracts increasingly favored by private payers.

Emory Healthcare went down the road to merge with WellStar this summer before clashing cultures prompted WellStar to turn its attention to the Tenet hospitals instead.

Incoming Emory CEO Lewin said more merger talks may not necessarily be in the cards for Emory, but expansion of the system's network of clinics and satellite operations certainly will be considered.

That's an area of expertise for Lewin, who joins Emory on Feb. 1. In the past two years, Lewin guided the expansion of the delivery system at Johns Hopkins Medicine in Baltimore.

Lewin said full mergers are often difficult culturally for academic health systems. But clinical networks and looser affiliations with hospitals—backed by the medical education and public health focus that Emory can bring to bear—can provide a continuum of care that patients and payers desire.

Said Lewin: “Mergers aren't the only path to success.”