Mercy, Upper Chesapeake doctors groups merging They aim to acquire more physicians, gain contracting leverage

Health care

July 22, 1998|By M. William Salganik | M. William Salganik,SUN STAFF

Upper Chesapeake Health System and Mercy Medical Center announced yesterday that Upper Chesapeake's physician group will be merged into Maryland Personal Physicians Inc. (MPPI). Mercy owns a majority of MPPI.

Mercy, in downtown Baltimore, and Upper Chesapeake, which owns the two hospitals in Harford County, also said they are merging their operations that manage physician practices.

Lyle Sheldon, president and chief executive officer of Upper Chesapeake, said the deals will allow "a centralized strategy" and shared resources to attract other physicians, and will make MPPI "more competitive in managed care contracting."

At a time when many hospitals are merging into larger systems, there is also a trend, experts said, toward mini-mergers -- limited deals between related operations without a merger of the parent hospitals.

"You want to be meeting the needs of your community, and you want business results," said Sister Helen Amos, Mercy's president and chief executive officer. "Sometimes, you won't get all you need from the same partner every time."

As a result, she said, hospitals are turning to limited mergers and joint ventures with other parties.

Mercy offers other examples. When it called off a full merger with North Arundel Health System in May, it announced it would merge its home health operation with North Arundel's. And last year, it joined with the University of Maryland Medical System in a Medicaid contracting arrangement.

Nancy Fiedler, senior vice president of the Maryland HospitalAssociation, said hospitals here are learning from West Coast hospitals, where mini-mergers are becoming more common.

Although hospitals might talk about full mergers, she said, those can be difficult to pull off. "Even in cases where full-asset mergers did not occur, hospitals would do partnering where it makes sense," Fiedler said.

Mark Feldman, vice president for marketing and planning at Maryland General Hospital, said, "The jury is still out with regard to full-asset mergers. Many have not delivered the results they had hoped."

nTC As a result, he said, hospitals are attracted to "very, very targeted" limited mergers "where you know what you are trying to accomplish."

For example, Feldman said, Maryland General decided it could not afford the development costs of a Medicaid managed-care organization so joined with the Western Maryland Health System (which operates the two Cumberland hospitals) and the Washington County Health System in Hagerstown to create Maryland Physicians Care.

Together, he said, the four hospitals could build a large enough patient base to make the enterprise viable. A similar model, he said, could be applied to other lines, such as ambulatory care centers or outpatient surgery.

Besides merging specific operations with other hospitals, Fiedler said, hospitals are also forming limited-purpose partnerships with nonhospital businesses.

For example, Fiedler said, two national for-profit companies have been talking to Maryland hospitals about possible single-purpose alliances. PhyCor Inc., based in Nashville, Tenn., manages 19,000 physician practices in 28 markets. Mariner Health Group Inc. of Framingham, Mass., has nursing homes and rehabilitation operations in 39 states.

The Mercy-Upper Chesapeake mini-merger is not necessarily a precursor to more ties between the hospitals, Amos and Sheldon said.

The deal leaves Mercy owning 57 percent of MPPI, said Dr. George Lowe, chairman and chief executive officer of the physician group. St. Joseph Medical Center owns 23 percent, and Upper Chesapeake gets a 15 percent stake in exchange for its physicians and managed-care contracts. Participating doctors own the balance.

The Upper Chesapeake group brings 13 more doctors to MPPI, which now has 144. About half of the practices are owned by MPPI, and the others contract with the group, said Mark J. Bittle, president and chief operating officer.

Lowe said most physicians who are inclined to merge their practices into a larger group have done so, so growth for operations such as MPPI would come primarily from absorbing other groups or from adding newly trained doctors to existing practices.

Joining the two physician management companies (known as "management services organizations," or MSOs) will create an entity based in the Rosedale-White Marsh area. Bittle said the merger is expected to save more than $1 million a year on facilities, computer systems and other areas. He said the merged system hopes to retain all current employees.

Pub Date: 7/22/98

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