Alliance formed by four Maryland hospitals

May 25, 1994|By Patricia Meisol | Patricia Meisol,Sun Staff Writer

To compete in a rapidly transforming health care industry, four Maryland hospitals have created a single health system to offer a full range of care far beyond that offered on their own campuses.

The system, formed by an alliance of three Baltimore hospitals and Holy Cross in Silver Spring, becomes the state's largest full-service health care network and furthers a continuing consolidation of the marketplace in Maryland and around the country.

Besides Holy Cross, the hospitals include the Greater Baltimore Medical Center, St. Agnes Hospital and Northwest Hospital Center. A news conference has been scheduled for this morning to announce the alliance.

"It was clear to us that an alliance of providers was to be essential for the future," given health care reforms sweeping the nation, said Robert P. Kowal, president of GBMC, who began talks with Robert E. Pezzoli, the president of St. Agnes, one year ago.

The two executives chose partners on the basis of quality, low cost and geography, Mr. Kowal said, noting that such factors were critical to compete in a state that has about 50 percent more hospital beds than it will need within a few years. Johns Hopkins Hospital had also participated in the talks, he said, but the hospital's costs were too high, and an agreement could not be reached.

If managed care companies -- primarily health maintenance organizations -- find the system attractive, as many as 1.5 million Marylanders, or one-third of the state's population, could wind up in the four hospitals' network over the next few years.

The new system, called Maryland Health Network Inc., has 2,500 doctors and recorded $550 million in revenue last year.

The alliance also creates a powerhouse in the baby business. Holy Cross and GBMC are No. 1 and No. 2 in the state, respectively, in births, delivering one out of five babies born in the state.

The announcement comes as hospitals throughout the country are affiliating with other hospitals as well as other health care providers. The push has come because managed care companies -- which pay health care providers a set fee per month for each patient they treat -- are demanding easier and cheaper ways to contract for health care for large groups of people.

This week, for example, the largest national hospital chain, Columbia/HCA Healthcare Corp., bought a 96-facility chain of outpatient surgery centers for more than $1 billion.

Locally, Good Samaritan Hospital merged three months ago with Franklin Square and Union Memorial hospitals into an alliance second in size only to Johns Hopkins Hospital. With expected 1994 revenues of $420 million, the alliance serves Northeast Baltimore and Baltimore, Harford and Cecil counties.

Johns Hopkins is also forming its own alliance in Maryland.

In this latest four-hospital alliance, the plan is to assemble a full range of health care services, buying or contracting out for those they do not provide. In this way, the new alliance would have greater appeal and strength when negotiating with HMOs and other managed care organizations that determine who cares for their members.

"We are physically moving away from being hospital CEOs to being health system CEOs," Mr. Pezzoli said. "Hospitals will still be a major player, but not the lead dog."

The four hospitals now serve a wide group of clients, from the working class of South Baltimore to wealthy and sometimes private paying patients above the Beltway.

With Holy Cross, the largest hospital in the Maryland suburbs of Washington, the alliance could compete for contracts in the state's most populous regions.

In many respects the four hospitals are above average when compared with peers; together they serve an above-average number of people with the ability to pay for health care.

Each is financially healthy, charges average or below-average prices for common procedures, and earns more than the typical Maryland hospital, state regulatory data show.

According to a study conducted for the hospitals by HCIA Inc., a hospital information company, the network's prices for the most common hospital procedures are 8 percent cheaper than the state average. If other Maryland hospitals were as efficient, the state's annual health care bill would drop by $223 million, the study found.

TH Of the four, only St. Agnes is in the city, with the result that the

network has a below-average charity bill, a factor that helps explain their lower prices.

Already the group treats 25 percent of health maintenance organization patients discharged from Maryland hospitals -- a significant number since HMOs try alternative treatments first. Between 27 percent and 30 percent of all Marylanders are enrolled in a managed care plan.

The hospitals will remain independently run. Their alliance will be overseen by a board of directors, with each hospital having two seats. The fourth hospital voted to sign up with the alliance late yesterday.

The agreement calls for the formation of two companies to run the alliance, which could begin operating in January. The first is Maryland Health Network Inc., a company initially funded by $4 million in equal contributions from the hospitals.

Maryland Health Network was formed to contract with insurance companies to provide health care services.

The second company, Maryland HealthLink Inc., will manage the nonhospital health businesses of each of the participants.

These include operations that provide home health care, durable medical equipment, hospice services and some outpatient services.

The hospitals each contributed $50,000 to create the company, which is expected to grow significantly as the network develops new rehabilitation businesses or expands businesses offered by some of the hospitals into all their market areas.

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