Hospitals seeking merger immunity

Partnerships: Leaders of two hospitals recovering from failed merger attempts foresee new affiliations that focus on programs.

January 28, 1999|By M. William Salganik | M. William Salganik,SUN STAFF

Two hospitals. Two new presidents. And two examples of how hospital systems are recovering from "merger fever."

Both are Roman Catholic hospitals located near the Beltway. Each is licensed for more than 400 beds, making it among the largest community hospitals in the state. Each made a major, but unsuccessful, push last year to merge with a nearby hospital.

Now the new leaders of both St. Joseph Medical Center and St. Agnes HealthCare see a future without mergers and with fewer acquisitions of related health business. But both predict that hospitals will form more limited affiliations.

James J. Cullen began work at St. Joseph last week, after being named president in October. He had been president and chief executive officer at the Hospital of St. Raphael in New Haven, Conn., a hospital similar in size and services to St. Joseph.

Robert W. Adams was named president and chief executive officer of St. Agnes in August. He was able to begin work immediately, since he was vice president and chief operating officer at the hospital. Before coming to St. Agnes in 1992, he was an administrator at University of Maryland Medical Center and at Baltimore County General Hospital (now Northwest Hospital Center).

Both St. Joseph and St. Agnes have spent the past few years growing from hospitals to more varied health systems. Both hospitals invested in physician practices, and one or both have invested in enterprises ranging from a surgical center to a nursing home to an urgent care facility to a "holistic therapy" center.

Last year, St. Joseph came close to a merger with Greater Baltimore Medical Center, its neighbor in Towson. GBMC ultimately decided to remain independent.

St. Agnes was a finalist as Howard County General Hospital, its neighbor to the south, sought a merger partner. At the end, Howard County joined Johns Hopkins Medicine.

After the hectic system-building, said Adams, "It's time to kind of slow down and stabilize it a little bit."

And Cullen said he wants St. Joseph to pause and consider strategy for six months before moving ahead.

Both expect future partnerships, but arrangements targeted to specific programs rather than full mergers.

For example, Adams said, St. Agnes recently sold a half-interest in its Ellicott City ambulatory surgical center to HealthSouth, a national, for-profit operator of outpatient facilities. St. Joseph has gone into partnership with physician groups for an urgent care center and a magnetic resonance imaging facility.

"I don't think you'll see St. Agnes outright merge with anyone," he said, "but we'll selectively partner with other hospitals and with nonhospital providers."

While in Connecticut, Cullen said, he had seen a rush to merge, but "the bloom is starting to fall off that rose."

Part of the rush to merge came from a fear that health maintenance organizations would only contract with large systems, he said, but demands for patient choice have limited exclusive contracts between HMOs and large hospital systems.

"I don't think you have to merge to collaborate," he said. "From an institutional point of view, we'll have a number of discussions that will focus on programs -- how we can embellish ours or help embellish theirs."

Adams said St. Agnes does not regret its varied acquisitions, but has learned that "each part of health care requires different expertise."

The hospital, for example, created an off-campus wound treatment center, then learned it would get lower reimbursements from Medicare, and moved the center to the hospital -- after losing $300,000 in a year.

"We've learned some hard lessons," he said, and the hospital is hoping that partnerships with experienced operators such as HealthSouth will provide management expertise for nonhospital enterprises.

Both also see the role of suburban community hospitals to continue to expand to include more complex forms of care.

"The technology has become more accessible," Cullen said, making it possible for many hospitals to offer services that used to be limited to large university-affiliated hospitals.

Pub Date: 1/28/99

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