New hospitals acquired in partnership

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Photo by Kathryn Crandall.

A network of Connecticut hospitals and a for-profit health care services company are coming together to expand their reach across the state.

On March 6, Yale New Haven Health System and Tenet Healthcare Corporation announced their partnership. The agreement, which has been in the works for two years, will bring the companies together to acquire Waterbury Hospital, Bristol Hospital and the Eastern Connecticut Health Network, which includes Manchester Memorial Hospital and Rockville General Hospital. Although YNHHS and Tenet will work together in an effort to enhance efficiency, they will remain independent organizations.

“As we looked at Connecticut, we saw an opportunity to come in and put together a system that would include these hospitals and provide regional scale,” said Tenet Senior Vice President of Corporate Development Trip Pilgrim. “We thought that if we were able to do that, in partnering with an organization such as Yale-New Haven, then it would be a great win for us.”

Pilgrim said Tenet has helped create a new joint venture identity, in which Tenet owns 80 percent of the venture and YNHH owns 20 percent. With that 20 percent, Tenet gets access to their clinical enterprise, clinical intellectual property and highly specialized subspecialists. Tenet sees these acquisitions as a great opportunity.

Pilgrim said it is critical to understand this partnership within the context of significant changes in the health care industry across the country, which have been accelerated by the Affordable Care Act.

Historically, those in the health industry were paid in a fee-per-service approach, but now individuals are starting to be compensated based on outcomes. He also said there are significant reimbursement cuts on top of this shift in payment models, including $550 million taken out of Connecticut state Medicaid, resulting in challenges for hospitals.

“The one thing that all of this change is pointing to as a viable solution is scale,” Pilgrim said. “Hospitals and health care have been a cottage industry for years, and we’re getting to the point where you can’t do that. You need to be able to look for … ways to be more efficient in delivering the care.”

Pilgrim said the company could enable health care providers to be more efficient by focusing on quality rather than volume. If the hospitals were on their own, they would have the purchasing power of one, but, under this new partnership, they will have the purchasing power of 77 hospitals in 14 states. He said that one of the greatest challenges facing free-standing hospitals under the ACA is making significant investments in clinical infrastructure

“As part of a scaled enterprise, we can make the same investments, but leverage those investments over 77 hospitals as opposed to just one. There are tremendous efficiency opportunities [in] combining the overhead functions of these organizations,” Pilgrim said.

As a company that is trying to grow, Tenet sees great opportunity in Connecticut because several community hospitals in the area are struggling, according to Pilgrim. He said certain hospitals need the capital in order to maintain the level and kind of care they have historically provided their communities.

YNHHS CEO Marna Borgstrom said in a March 6 press release that the hospitals involved in the system see the partnership as an opportunity to access critical capital that is otherwise unavailable.

“We are excited to bring a truly innovative solution to some of the challenges in the Connecticut health care landscape through our partnership with Tenet,” Borgstrom said.

According to Dean of the Yale School of Medicine Robert Alpern, hospitals across Connecticut have been experiencing financial difficulties and many are looking to sell their businesses. During this time, YNHHS began discussions with Vanguard, which Tenet has since acquired, about Vanguard providing the capital and YNHHS providing its medical services and doctors, Alpern said.

But the partnership is not without its critics. According to Alpern, state legislators wary of for-profit health-care systems in the state and health care union members have voiced opposition to the deal.

The issue is further complicated by Connecticut’s ban on for-profit hospitals employing physicians. According to Alpern, if Tenet is unable to hire its own doctors, it is unlikely that they will pursue the partnership and acquire the hospitals.

The issue also extends beyond the legal realm. If Tenet does not feel that Connecticut is a welcoming economic and political environment, Tenet may choose not to acquire the hospitals, Alpern added.

Pilgrim said that, if the Connecticut Legislature proposes legislation that is particularly onerous, then they would have to forego this operation entirely. The legislature adjourns May 7, and Tenet might know what type of legislation is proposed.

“The ability of these hospitals to survive, short of these solutions, is in serious question,” Pilgrim said. “We’re talking about sustainability and survivability of hospitals in these communities. These communities’ ability to continue to access high quality and comprehensive care could be in serious jeopardy outside a transaction like this.”

Tenet has helped provide regional scale to networks of hospitals in areas including Massachusetts, Detroit, San Antonio and South Florida.

 

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