Joining for wellness Merger: Liberty Medical Center and Bon Secours Hospital have disparate histories but are merging to secure their places in a changing medical marketplace.

November 03, 1996|By M. William Salganik | M. William Salganik,SUN STAFF

One began in the last century with the desire to have a hospital in Baltimore that would treat black patients and would train and hire black medical staff. The other began in the last century with a small order of French nuns invited to Baltimore by the archbishop to treat people in their homes.

Despite their disparate histories, Liberty Medical Center and Bon Secours Hospital have been brought together by some thoroughly modern, and some 21st century, considerations.

The two urban hospitals are seeking to secure their place in a changing medical marketplace, combining to make themselves into the kind of full-service, cost-efficient institutions that appeal to managed care insurers. Liberty's merger into the Bon Secours Baltimore Health System is expected to close in a few weeks.

Their efforts are given a sense of urgency as the government programs that insure most of their patients are shifting rapidly into HMOs and similar managed care plans.

Medicare and Medicaid have lagged behind commercial plans in shifting from patient-choice, fee-for-service insurance to managed care, in which the health plan exercises more control over what care patients receive and where they receive it. But both are catching up rapidly -- Maryland plans to move all its Medicaid recipients into managed care plans within six months next year -- and Bon Secours and Liberty must move nimbly to adjust.

They've adjusted in the past; each has reinvented itself several times.

Liberty is a successor to Provident, the city's traditionally black hospital that began in a rowhouse in 1894. In financial trouble, Provident was essentially taken over in 1986 by Lutheran Hospital in a merger that formed Liberty. Since Provident had a relatively new building (its facility on Liberty Heights Avenue opened in 1970) and Lutheran an old one, the operations were consolidated on the Provident campus.

The sisters of Bon Secours (French for "good help") were invited to Baltimore in 1881 by Cardinal James Gibbons. The sisters opened a hospital in West Baltimore -- the original building, on Fayette Street, is still in use -- in 1919.

The order opened hospitals in other cities, and created an overall management structure, Bon Secours Health System, in 1983, based at the provincial house and retreat center for the Congregation of Bon Secours order in Marriottsville.

Just six hospitals as recently as 1993, the Bon Secours system is now, in effect, a billion-dollar health corporation.

Three other hospitals -- two in Virginia, one in Pennsylvania -- joined the system Thursday, and Liberty will bring the total to 15.

The system, which includes nursing homes, home health care and other services, will have about 17,000 employees.

Changing industry

Mergers, consolidations and growth have become a daily diet in the health industry. Maryland alone has seen five hospitals merge into the Helix system, Johns Hopkins take over what is now Johns Hopkins Bayview, two Seventh Day Adventist hospitals in the Washington suburbs form a system, and two hospitals on the Eastern Shore merge earlier this year. Two hospitals in Cumberland are completing a merger now.

"Clearly, inpatient volume has been going down," as more patients are treated outside of hospitals and hospital stays are shortened, says David S. Salkever, professor of health policy and management at the Johns Hopkins School of Public Health. "Hospitals are under a lot of pressure to reduce unit costs to cope with the drop in volume." One way to do that, Salkever continues, is to spread administrative overhead.

Lower occupancy

The drop in inpatient volume has been dramatic at both hospitals: Occupancy at Bon Secours has dropped from 71.6 percent for the year ended June 30, 1991, to 59.1 percent (around the state average) five years later. Liberty has fallen from 75.9 percent to 43.8 percent over the same period.

While both operate in the black, their margins are small by state and national standards.

And Liberty has been identified for several years by the state's hospital rate-setters as a high-cost hospital, preventing it from taking full inflation adjustments to its rates until its costs come closer to the state average.

Liberty announced a staff restructuring last week designed to trim costs and affecting about 130 of its 1,070 employees. Liberty officials said the cutbacks were unrelated to the merger and were in response to Liberty's own reduced inpatient usage.

Mergers can reduce overhead somewhat, but Carl Schramm, president of Greenspring Advisors, a firm serving investors in health and managed care, says research shows that "efficiency can't begin below 350 beds."

Both Bon Secours and Liberty have between 200 and 300 beds. To achieve significant cost savings, Schramm says, the hospitals might find they have to close one of their campuses, or at least consolidate certain services in one facility.

Combining operations

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