Hospitals merging to shore up finances and, as federal health-reform law encourages, improve patient outcomes

With one expert calling it "merger mania," Robert Hadley of The Lane Report looks at how Kentucky hospitals and hospital systems are banding together as they brace for reimbursement changes mandated in the new health care law.

The most discussed merger is that of Louisville's Jewish Hospital & St. Mary's HealthCare, Lexington-based St. Joseph Health System and University Medical Center at the University of Louisville. "At stake in the plan is not only the sale of a physical asset (University Hospital) that belongs to the commonwealth, but also potential changes in delivery of care that ceding control to a faith-based organization might bring," Hadley writes. Saint Joseph is owned by Catholic Health Initiatives, which follows the Catholic directives that prohibits abortion, sterilization and euthanasia.

Baptist Hospital East has since stepped in and said University of Louisville Medical School physicians are welcome to perform needed procedures at its facility.

Though complicated issues need to be addressed, hospitals are eager to merge regardless. Why? Financial viability, especially in the face of change as a result of the federal health-care reform law, sometimes called "Obamacare." Starting in 2013, hospitals will be reimbursed for Medicare and Medicaid procedures differently. Rather than be paid using a fee-for-service model, in which facilities are paid for each procedure performed, they will be paid based on quality and outcomes. If the outcomes are good, the facility will get paid more. The goal is to encourage care with good outcomes, rather than just pay for treatment, in which the incentive might be to over-treat in order to get more reimbursement.

"More and more of the reimbursements we receive in the future are going to be tied to performance, our quality and satisfaction scores," said Andy Sears, vice president of planning and system development for Baptist Healthcare System, which is looking to merge with Madisonville-based Trover Health System. "That's what the value-based purchasing coming out of Obamacare is all about. It's going to cause Baptist, Trover (Health System) and any other health-care organizations to begin to address how we're going to provide more value for the care we deliver."

"Pressure to leverage cost savings as reimbursement declines while being able to afford facility expansion are the two primary reasons" for the Baptist-Trover merger, Hadley reports. "As a single hospital in a rural community, Trover is finding it difficult to attract capital investment, much like University Hospital."

The Jewish-St. Joseph-University Hospital merger will mean at least a $200 million cash infusion for University Hospital alone, and nearly $1 billion of capital investment, including information technology, over the next five years, said Dr. Dan Varga, chief medical officer at St. Joseph Health System.

Essentially, with new changes coming, there is power in numbers. "Trover is a big organization and clinic," Sears said. "But they're facing the same situation a lot of stand-alone facilities are facing. Business is declining, reimbursements are declining, and when you don't have payments in, you can't take care of capital needs." (Read more)