Independent hospitals endangered

PRELIMINARY DISCUSSIONS are underway between Yale New Haven Health System in New Haven, Conn., and South County Hospital, Rhode Island’s only independent community hospital. / COURTESY SOUTH COUNTY HOSPITAL
PRELIMINARY DISCUSSIONS are underway between Yale New Haven Health System in New Haven, Conn., and South County Hospital, Rhode Island’s only independent community hospital. / COURTESY SOUTH COUNTY HOSPITAL

By this time next year, the independent community hospital in Rhode Island could be a thing of the past.
The last of the independents, South County Hospital in South Kingstown, is now actively exploring a merger with a larger health care provider and could choose a partner as early as this spring.
Financially, the 100-bed nonprofit hospital has been one of the stronger health care providers in the state, but South County leaders say the changes overtaking the nation’s health care system are forcing all organizations to evolve.
By actively and openly talking to potential partners, South County hopes to find an advantageous arrangement on its own terms, before circumstances dictate one.
“We started this about two years ago with an assessment of the future of health care in Rhode Island, the community’s needs and how we thought South County would fare given all the changes,” Louis Giancola, president and CEO of South County Hospital Healthcare System said in a phone interview. “We chose relating to a nonprofit system and working with someone within our geographic area. We also established a set of principles relating to the things we hold sacred in terms of quality and community.”
Last February South County reached out to four health care systems – Lifespan, Care New England, Lawrence + Memorial Hospital and Southcoast Health System – to see if they were interested in a partnership. All but Lawrence + Memorial indicated they were.
Then in December, South County described what it was looking for in any partnership and asked the three organizations to respond this month with more detailed merger proposals.
Giancola said South County is now analyzing the responses and the board of trustees expects to choose one of the bidders to enter into exclusive negotiations this spring.
If those talks prove fruitful, a merger could realistically be executed and approved by state regulators by the first half of 2015. South County’s standing as the only independent Rhode Island hospital is the result of a rapid series of mergers, including three in the past year.
Those deals include Westerly Hospital being purchased by Lawrence + Memorial Hospital of New London, Conn., Memorial Hospital in Pawtucket joining Care New England and Landmark Medical Center in Woonsocket being purchased by for-profit Prime Healthcare Service of California.
While Westerly and Landmark were insolvent, across the country hospitals are consolidating to improve their competitive position in the face of continued structural changes in health care payment.
According to Giancola, perhaps the top benefit to being part of a larger health system is the ability to spread risk among a greater number of patients.
Sharing risk is less of an issue under the traditional fee-for-service model used now, but the move toward a payment model based on the number of patients cared for makes spreading that risk advantageous.
Giancola thinks hospitals in the area will move from fee-for-service to a true risk-based model in as little as two years.
“We think scale is important because you want as many lives in the system as you can,” Giancola said. “One trend is [for the] insurer to push risk down on providers. If you are going to accept risk, scale becomes important.”
Another benefit of organizational size is being able to attract medical talent in the increasingly competitive race to hire top physicians and specialists, which in turn results in more patients, Giancola said.
And then there are the more obvious advantages with a larger organization like improved access to capital markets and the opportunity to share some functions and lower costs through economies of scale. So what is South County hoping for in a merger?
Giancola said the right partner would recognize a significant level of local decision-making in governance and make a financial investment to help South County adjust to the systemic changes underway. In particular, the hospital would like resources to build its primary care network.
Many hospital mergers are met with concern from their host community about consolidation of services, the hollowing out of the local facility and whether people will be forced to travel for many medical needs.
Giancola said keeping existing functions in South Kingstown would be a requirement in any partnership.
“We are seeking a partner who believes that the interests of their system would be served by the array of services we currently have in our system,” Giancola said. “So we hope to be able to insure that as long as the current services are relevant, we can provide them.”
If and when South County joins a larger system, the only remaining independent community hospital in the Providence metropolitan area will be Sturdy Memorial Hospital in Attleboro, which has steadfastly maintained its independence.
In 2013, Sturdy posted its 28th consecutive annual profit and is not currently considering a partnership, according to spokeswoman Lisa McCluskie.
“We have the resources to finance, without borrowing, the acquisition of key technology as well as the construction of needed facilities,” said Sturdy President and CEO Linda Shyavitz in a letter, passed along by McCluskie, explaining Sturdy’s satisfaction with the current arrangement. “Approximately 90 percent of what all hospitals do is exactly the same. When there is a reason for our patients to get care elsewhere, our physicians recognize it and refer patients for appropriate care at tertiary hospitals.” •

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