Southern Regional Health System and Emory Healthcare announced Thursday that they will enter talks on a possible affiliation.
Emory would manage Southern Regional, a Riverdale hospital system, under the proposal.
The announcement of a letter of intent follows initial talks between the two nonprofit organizations reported in March. And it continues the drive for consolidation among hospitals across the state, and especially in the metro Atlanta area.
Earlier this year, Emory completed a partnership with Saint Joseph’s Hospital in Atlanta to form a joint operating company. Elsewhere in the state, hospital mergers have occurred in Albany and Valdosta, and the Mayo Clinic recently took control of a health system in Waycross.
Southern Regional Medical Center, a 331-bed hospital, has faced steep financial challenges in recent years. In its 2009 fiscal year, the Southern Regional Health System reported a net loss of $6.4 million, according to its IRS Form 990 filing on Guidestar.org.
Southern Regional CEO Jim Crissey cited Emory’s commitment to quality care, financial strength and solid reputation as factors in the decision to move forward with talks.
“Our board is confident that Emory’s mission aligns closely with our own and our shared values will help us to form a successful partnership,” said Crissey in a statement. “Our goal is clear: To ensure that Southern Regional remains in this community and continues to provide vital medical care to its citizens.”
Meanwhile, John Fox, president and CEO of Emory Healthcare, said in a statement, “We will work diligently with Southern Regional to formalize a management agreement and to integrate Southern Regional into our clinical network.”
With an affiliation, Emory would strengthen its presence in the southern crescent of metro Atlanta, said Emory spokesman Vince Dollard.
Dollard said an agreement, if completed, would be a looser affiliation than the partnership with Saint Joseph’s, where the latter’s staff and physicians became part of Emory Healthcare. Southern Regional would remain a separate organization with a separate board, Dollard said.
Consultant David Smith of Kearny Street Consulting said an agreement ‘‘would be wonderful for Southern Regional.’’ The hospital ‘‘has been on the ropes’’ financially over the past few years, with a high level of Medicare and Medicaid patients, Smith said. “For the Clayton County community itself, it’s wonderful.’’
Smith added that he was surprised that Emory had interest in such a deal. He said it might be a defensive move for Emory, with rival Piedmont opening a new hospital in Newnan and recently finalizing an alliance with Henry Medical Center, now known as Piedmont Henry Hospital. Piedmont also operates hospitals in Fayetteville, another facility in the southern metro area, and in Jasper, in North Georgia.
An agreement with Southern Regional “protects the southern part of the city for [Emory],’’ Smith said. Emory also has a facility in the north metro area, Emory Johns Creek Hospital.
The consolidation of hospitals is a national phenomenon. The moves are partly caused by the health reform law’s incentives for hospitals and physicians to combine into ‘‘accountable care organizations’’ so reimbursements can reward quality of services, not volume of services delivered.
Hospitals are also feeling pressure from declining payments from government programs Medicare and Medicaid.
The metro Atlanta hospital market will probably continue to consolidate, with major organizations such as Gwinnett Medical Center and DeKalb Medical Center still in play, Smith said. “It’s an exciting time and a scary time as well,’’ he said.