RWJBarnabas Health and St. Peter's Healthcare System have signed a letter of intent to join forces, the New Jersey-based not-for-profit health systems announced Monday.
The letter of intent—with the exact structure of the deal still undetermined—follows St. Peter's request for proposals in October 2018. In Middlesex County, and across the country, it has been increasingly hard to operate an independent hospital, said Leslie Hirsch, CEO of St. Peter's, which owns the 478-bed acute-care teaching hospital, St. Peter's University Hospital.
"The rapid consolidation of hospitals in New Jersey and need for greater scale, as well as ongoing changes in healthcare delivery made it vital for us to identify a dynamic and strong strategic partner that would allow St. Peter's to retain its Catholic mission and identity, remain competitive, and yield the best possible outcome for our patients, employees, medical staff and the communities we serve," he said in prepared remarks.
West Orange-based RWJBarnabas would help New Brunswick-based St. Peter's expand its outpatient network, among other investments, according to the letter of intent. A definitive agreement is expected in the coming months and state and federal officials and the Catholic Church would need to sign off before the deal is finalized.
Many communities and independent hospital executives have been grappling with cutting services as they search for larger health systems that can bolster operations, reimbursement and capital spending. Yet, economists warn that healthcare prices continue to rise as providers consolidate.
The Trenton, N.J., hospital market, for instance, is highly concentrated as defined by the Herfindahl–Hirschman Index, according to the Health Care Cost Institute's analysis of commercial claims data. Inpatient prices in Trenton rose 9.3% from 2012 to 2014, HCCI data show. The hospital market transitioned form moderately to highly concentrated over that span.
Meanwhile, more than half the nation's stand-alone hospitals have lost money on an operating basis for each of the past five years, which is more than twice the share of system-owned hospitals, according to an analysis of Modern Healthcare Metrics data.
St. Peter's posted $3.1 million in operating income on revenue of $360.9 million through the first nine months of the fiscal year, down 74% from $11.8 million in operating income on $357.2 million of revenue over the prior-year period, according to Modern Healthcare's financial database.
The timing of a payment via the Delivery System Reform Incentive Payment Program skewed the financial results, St. Peter's said. The organization's performance is actually exceeding 2018, and it is on track to yield a 3% operating margin, the company said.
RWJBarnabas reported operating income of $130.7 million on $4.2 billion of revenue through the first nine months of the fiscal year, down 27% from $179.6 million of operating income on $4 billion of revenue compared with the prior-year period.
RWJBarnabas also signed a letter of intent in October to acquire Trinitas Regional Medical Center, with plans to extend Trinitas' outpatient network.
