With the start of the new year, two of Delaware's health-care systems merged with peers and avoided adding to a growing number of hospital closures in America.
ChristianaCare, the state's largest private employer, signed a Jan. 1 agreement that merges Union Hospitalin neighboring Cecil County, Maryland, into the New Castle County-based health-care system.
[caption id="attachment_171718" align="alignright" width="437"]ChristianaCare has completed its acquisition of Union Hospital in Elkton, Maryland, which will now be known as ChristianaCare, Union Hospital. | Photo courtesy of UHCC[/caption]
The merger increases the operational footprint of ChristianaCare, which currently has two hospital campuses, Wilmington and Christiana, boasting more than 1,200 beds, as well as a freestanding emergency department in Middletown. It also notably expands ChristianaCare across state lines in terms of hospital services for the first time "“ ChristianaCare does operate two primary care offices in southern New Jersey "“ taking on Union's 72 beds and assorted specialty care programs.
That move adds Nanticoke Memorial Hospital's 99 beds, outpatient services, Level III trauma center, and specialty programs in stroke, interventional cardiology and cancer care to Peninsula Regional Medical Center's 266 beds, outpatient services, a Level III trauma center, and specialty programs in neurosurgery, cardiothoracic surgery, cancer care and more.
In both cases, the smaller hospital systems had tried to navigate the choppy waters of independence in the health-care marketplace, only to end up choosing to merge with a larger partner for greater financial security.
ChristianaCare, which breaks its organization into several tax-exempt organizations, produced a net revenue of more than $210 million in fiscal 2017, according to publicly available audits. The organization as a wholeheld more than $2.3 billion in net assets.
On the other hand, Union Hospital has endured a rough stretch over the last few years, and produced a net revenue loss of $5.8 million in fiscal 2019 "“ although that was down considerably from the previous fiscal year when it had a net operating loss of about $12 million, according to Maryland state audit records. It holdsabout $82 million in net assets as of June 30.
The situation was similar to the south, where Peninsula Regional produced a net operating revenue of more than $38 million and held total assets of more than $1 billion across three tax-exempt organizations in fiscal 2018, according to federal filings. In comparison, Nanticoke produced a net operating revenue of $8 million and held more than $95 million in net assets in FY 2018. It too had endured, following a more than 50% drop in annual net revenue from its largest revenue creator, Nanticoke Memorial Hospital, from just three years ago.
That drop came due to a decision by the federal Centers for Medicare and Medicaid that defined all three Delaware counties as urban, which meant that the hospital would no longer be reimbursed at a special higher rate because about 65% of Nanticoke's patients depend on Medicare. The change cost Nanticoke about $6 million in add-on payments annually.
[caption id="attachment_171730" align="alignright" width="370"] Nanticoke Memorial Hospital[/caption]
Nanticoke Health Services President and CEO Steve Rose, who will retire later this month, previously told Delaware Business Times that Nanticoke had been looking at potential mergers since 2014.
"We saw the handwriting on the wall as the health-care landscape has changed," he said in October, noting that his organization had also explored a merger with an unnamed Delaware-based health system that ultimately wasn't chosen.
Steve Leonard, president and CEO of Peninsula Regional Health System, previously told DBT that his organization already gets more than 24% of its revenue and 21% of its patients from Delaware, and he believed that "health care in the future depends on servicinga region and taking care of a larger population."
Leonard is probably right in that belief, as the number of rural hospital closures and mergers have risen in the last decade.
Studies by the University of North Carolina's Cecil G. Sheps Center for Health Services Research identified 326 rural hospital mergers between 2005 and 2016, and 162 rural hospital closures from 2005 to present. Last year saw the highest number of closures yet recorded at 19, and those statistics only count hospitals not locatedin metropolitan areas, meaning high-profile closureslike Hahnemann University Hospital in Philadelphiaare not included.
Among the reasons that researchers cited the rising number of mergers were capital resources, risk-bearing capabilities, care continuum, diversified operations,and brand presence.
In the case of Union Hospital, reimbursement rates played a part in its difficulties to endure independently as it had for more than a century.
Former Union Hospital President and CEO Dr. Richard Szumel, who now serves as president of ChristianaCare, Cecil County, told the Cecil Whig newspaper last year that its 2018 merger attempt with Baltimore-based LifeBridge Health was scuttled after the Maryland Health Services Cost Review Commission began a review of Union's total cost of care.
Maryland has long operated the nation's only all-payer hospital rate regulation system, overseen by the HSCRC, which is allowed under a decades-old Medicare waiver from the federal system. Under that waiver, all third-party payers - Medicare, Medicaid or private insurance - pay the same rate.
While the state's current regulation model notably seeks to dissuade hospitals from running up services for fees by placing an annual cap on revenues, in Union Hospital's case it is having a different effect. As a low-volume, high-cost provider, HSCRC regulators were reportedly reviewing whether to reduce the hospital's reimbursement rate.
Following news of that review and the failed LifeBridge merger, Union officials worked to increase patient volume, and add more surgeons and physicians. Ultimately, they also continued shopping the hospital system and found a partner in ChristianaCare.
"All health-care systems have to adapt to the new environment and small community hospitals are sometimes slower to change, but we have the opportunity now "¦ to make sure that we can meet our mission," Szumel told the Whig.
Sharon Kurfuerst, chief operating officer at ChristianaCare, told DBT that the organization was well aware of the financial challenges befallen Union before the merger was approved. Noting that they completed a "really thorough due diligence period over the past six months," Kurfuerst said that the "timing was right on the deal" for the long-familiar entities.
While acknowledging that Maryland's all-payer hospital rate regulation system would be a new challenge for ChristianaCare, Kurfuerst said that the health care system was well-prepared for it.
"With our experience in value-based care, we're confident that ChristianaCare will thrive in Maryland's all-payer hospital rate regulation system," she said, referring to the model that stresses educating patients to stay health at home to cut down on health care costs. "This story to us is less about financial solvency and saving a hospital, but about health and providing high-quality care and positive outcomes to a community."