Byline: Vince Galloro
After considering two for-profit hospital companies as a possible partner, Baptist Health System of East Tennessee plans to remain in the not-for-profit Knoxville family.
Baptist and St. Mary's Health System announced last week that they have signed a letter of intent to merge the two systems. The proposed merger would make a system of roughly the same size as the largest adult acute-care system in Knoxville, Covenant Health, said Janice James, interim chief executive officer of Baptist. Baptist has four hospitals in the Knoxville area and St. Mary's, which is also part of Cincinnati-based Catholic Healthcare Partners, operates four hospitals there. The combined system, which will be owned by Catholic Healthcare Partners, is expected to have annual revenue of about $600 million, St. Mary's said.
'It makes this a very important part of any managed-care payer's network,'' said James, a managing director with Huron Consulting Group. 'Each was important on its own, but they are more important combined.''
The agreement, if it is completed after due diligence is performed and federal antitrust clearance is won, ends nearly two years of searching by Baptist for a solution to its financial problems. Baptist was struggling with $217 million in debt when it agreed to form an 80-20 joint venture with Triad Hospitals, Plano, Texas, in June 2006. That deal was scuttled in November 2006 (Nov. 13, 2006, p. 12). Triad itself was acquired by Community Health Systems, Franklin, Tenn., for $6.97 billion in July.
Baptist also has discussed a management agreement with Franklin-based Iasis Healthcare. The other not-for-profit providers in the Knoxville market also approached Baptist during this period. Wellspring Partners, now owned by Huron Consulting, was hired to manage Baptist in February.
James said that her turnaround team has been on the job only since March, but has improved the system's finances by about $13 million already. The system is able to fund its operations on cash produced by those operations, rather than dipping into reserves, she said.
That improved financial performance helped bring the systems together, as they share a lot in common as faith-based organizations, said Craig Griffith, a St. Mary's spokesman. The boards of each system will combine as a single board in a new umbrella organization that has yet to be named, Griffith said. Both systems will retain their individual identities for marketing purposes, he said.
Geographically, the systems are largely complementary, James said, although the downtown campuses of both systems are located near each other. The systems do not anticipate any facility closings, she added. There will be some effects felt at the facility level, she said, but the service lines of the hospitals have not been analyzed to see how compatible they are.
One service line that has come up is family planning services. The combined system will be operated as a Roman Catholic healthcare system and will follow all of the church's religious and ethical directives, Griffith said. Baptist has a much smaller obstetrics program compared with St. Mary's, so the impact will be small, James said.
The deal requires antitrust clearance from the Federal Trade Commission under the Hart-Scott-Rodino Act, and also requires the Tennessee Baptist Convention's approval. The systems hope to complete the deal by Jan. 1, 2008.
Also last week, St. Mary's announced that it will take over the lease of 77-bed Scott County Hospital, Oneida, Tenn., by Jan. 1, 2008. The county-owned hospital has been operated by privately held Attentus Healthcare, Franklin, Tenn., since February 2005.
CAPTION(S):
Baptist Hospital of East Tennessee would be part of a merged eight-hospital system.
