Top executives from South County and Westerly hospitals, both grappling with mounting financial difficulties, say they are considering the possibility of joining forces.
Talks between the hospitals could result in a range of outcomes, from combining purchasing powers to committing to an outright merger, according to Charles Kinney, president and CEO of Westerly Hospital.
“You have a whole spectrum” of actions under consideration, Kinney said in an interview last week.
Louis Giancola, president and CEO at South County Hospital, confirmed that executives from both hospitals have had two “very positive” meetings, and that another meeting was scheduled last week.
“At this point, we’re trying to understand each other’s issues and challenges,” Giancola said early last week. “We’ll be meeting again to explore what our visions are.”
Giancola was reluctant to discuss the prospect of a merger, at least last week. Hospital executives don’t want to approach the matter from “a transactional prospective,” Giancola said. “We want to approach this from a health planning prospective.”
News of the discussions last week follows the release of a state report last month that examined the financial problems of the state’s eight community hospitals, none of which turned a profit in 2006.
That year, South County lost $2.5 million, while Westerly lost $4.5 million. The report by the R.I. Community Hospital Task Force, which was assembled jointly by Gov. Donald L. Carcieri and Lt. Gov. Elizabeth H. Roberts in April, cited disparities in health insurance reimbursement rates as part of the problem.
At the same time the report was released, Rhode Island’s two hospital groups, Lifespan and Care New England, announced that they had agreed to merge; the regulatory approval process for that deal is just beginning.
Both Giancola and Kinney said the task force report, which recommended that the state’s independent hospitals consider collaborating, served as a catalyst for their talks.
“What I saw in that report was: Yes, there is a problem with community hospitals, and it’s going to get worse,” said Kinney, adding that the proposed merger of Lifespan and Care New England was also a motivating factor.
Edward Quinlan, president of the Hospital Association of Rhode Island, said he would not be surprised if other independent hospitals are considering working together, or even merging. “Such talks happen frequently between hospitals,” Quinlan said, “but most conclude without an agreement.”
“All hospitals are going through an unprecedented amount of financial stress,” he continued. “Every hospital has got to figure out the best way to serve their communities going forward.”
The reasons why hospitals are struggling are various, according to Quinlan and the two hospital executives.
Bad debt is soaring, they said, as the uninsured rate has nearly doubled in recent years and many who have health coverage face deductible and co-payment requirements they cannot afford.
Adding to the smaller hospitals’ problems, Giancola said, is the disparity in the amount hospitals are reimbursed by the insurance companies, a finding also made in the task force report. “There’s a wide variation in the reimbursements hospitals receive for the same services,” Giancola said.
Also playing a part in the financial crisis, Quinlan said, is “the continued movement of services such as imaging to freestanding medical facilities that don’t face the same regulatory oversight as hospitals.”
If a hospital adds a service or plans a capital expense exceeding $2 million, it must seek an approval from the state. Freestanding medical facilities don’t need the same certificate of need from the R.I. Department of Health, Quinlan said. They are also not required to provide charity care. “There are two different standards,” Quinlan said.
Talks between Westerly and South County hospitals make sense, those involved said, because of their relatively close proximity in the southern part of the state. They are also similar sizes. South County is licensed for 100 beds; Westerly is licensed for 125 beds, but the facility only has 75 beds right now.
The two hospitals have differed somewhat in their financial performance. While both facilities finished 2006 in the red, South County Hospital had turned a profit of $200,000 in 2004 and $1.2 million in 2005. Westerly Hospital, however, lost $4.5 million in 2004 and $4.7 million in 2005.
Kinney explained that the hospital’s location near the Connecticut border creates a unique problem. Connecticut hospitals receive a higher reimbursement rate from health insurance companies, meaning they can afford to pay higher salaries. So in order to recruit and keep staff from moving to Connecticut hospitals, he said, Westerly Hospital must offer its employees salaries in the same range, even if it can’t afford it. •
