Meridian Health completed its acquisition of Raritan Bay Medical Center, one of two deals set in motion last year that will make the system one of the largest in New Jersey.
The Neptune, N.J.-based health system announced it acquired Raritan Bay's two New Jersey hospital campuses after winning approval from the state. Meridian also has a pending deal with Hackensack University Medical Center.
New Jersey's hospital market is consolidating rapidly. The combined operations of Meridian and Hackensack and a pending deal between Barnabas Health and the Robert Wood Johnson Health System would create New Jersey's two largest health systems.
Meridian's growth is necessary, officials say, to prepare for the financial risk of new insurance models that make hospitals responsible for keeping patients' healthcare costs within a budget, either for the year or for specific services. Large health systems responsible for large numbers of patients are less likely to blow the budget because of a few highly expensive patients.
“We believe that we have to be larger than we are in order to be relevant in the future,” said John Lloyd, president of Meridian. Many in New Jersey healthcare feel the same, he said. “I think you're going to see continued consolidation. Most of us feel we can't stay as we are. We need more critical mass.”
The growth comes with challenges. Raritan Bay Medical Center operates in Perth Amboy, N.J., and Old Bridge, N.J. A review of the facilities' 2013 finances by Fitch Ratings shows Raritan Bay operated at a loss with $39 million in debt.
Lloyd said Raritan Bay leaders have worked to improve its finances in the past few years.
Now Meridian will make capital investments to improve its operations, including renovating or replacing the emergency room at one campus and upgrading its information technology. Meridian will also refinance Raritan Bay's debt to reduce its interest payments. And it will seek to expand Raritan Bay's ambulatory presence.
Meridian, meanwhile, has enjoyed strong and growing operating margins in recent years, with an operating margin for the first nine months of 2015 of 8.9%. The system reported an operating margin of 7.5% for fiscal 2014.