A Savannah health system’s announcement that it will pursue a strategic partnership with Novant Health fits into the recent flurry of hospital consolidation across Georgia.
This potential nonprofit hospital combination is unusual in one way: It involves an out-of-state hospital system. Novant is based in North Carolina. But Savannah’s Memorial Health and Novant have been working together since 2012 with a “shared services agreement” that they say has led to cost savings.
Partnership and acquisition talks have sprung up in metro Atlanta and elsewhere in Georgia as hospitals look for ways to weather the rapid changes in health care, many of which were sparked by the Affordable Care Act.
The board of Memorial Health this week authorized its directors and senior management to work on an “exclusive basis” with Novant Health. Board Chairman Harry Haslam said a goal was to “ensure long-term stability amid the changes in health care reform.”
Memorial Health operates Memorial University Medical Center, a 604-bed Savannah hospital.
Other deals pending in Georgia include a proposed merger between major metro Atlanta players Northside Hospital and Gwinnett Medical Center; and WellStar’s plan to buy Tenet Healthcare’s five hospitals in metro Atlanta.
Blending the operations of two health systems is not easy, and some potential hospital deals have not gone beyond the negotiation stage. But the overall trend toward consolidation is unmistakable.
Memorial Health’s Haslam said the current agreement with Novant has saved more than $8 million in costs and led to a commitment to build a freestanding children’s hospital, along with IT and clinical collaborations.
Carl Armato, the Novant Health president and CEO, said in a statement, “We are excited to take this next step in our relationship with Memorial Health.”
The Savannah Morning News, quoting Memorial President and CEO Maggie Gill, reported that Novant was recommended from a pool of strategic partners by the hospital board’s negotiating committee.
Memorial’s current agreement with Novant has helped Memorial maintain its independence, local management structure and “brand equity,” which includes national recognition for quality of care and patient safety, Gill said, according to the article. With a partnership, Gill would continue in her position and her management team would remain intact, the Morning News reported.
Among Memorial’s needs is access to capital to allow the system to support clinical services it alone provides in this region — a neonatal intensive care nursery and the hospital’s trauma center, the Morning News reported.
A core element in the proposed partnership is to support Memorial’s commitments to the Chatham County Commission, the newspaper reported. That includes paying off $195 million in bonds as well as providing promised services and continuing a commitment to treat all people regardless of their ability to pay, Gill said.
Memorial officials said they were unsure whether a partnership, if finalized, would be a merger or a looser arrangement.
Craig Savage, a consultant with CMBC Advisors, based in North Carolina, said Wednesday that Novant “has methodically over the years added to their portfolio, in North Carolina and elsewhere.”
Hospital systems are looking to expand in order to increase their negotiating power with health insurers, Savage noted. “Some of it is size for economic survival. It’s going to take size to be successful in the long haul.”
Government and private insurers are increasingly stressing quality of care in reimbursements, instead of just paying for the quantity of services delivered. Medicare is paying bonuses and imposing penalties under the ACA based on quality-of-care measurements.
Getting bigger may help hospital systems cut costs and meet the new demands on quality, experts say. And partnering with a large system may help a smaller, independent hospital avoid financial trouble.
The wave of consolidation in the health care business also involves insurers. Two current examples are Aetna’s proposed acquisition of Humana and Anthem’s planned deal to buy Cigna.
Chris Kane, a consultant with DHG Healthcare, said Wednesday that he was not surprised by the potential pairing of Memorial and Novant.
“They are two very well-regarded health systems who have a successful track record of working together,” he said. “This appears to be a logical progression between two parties who know and trust each other.”