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Independence days waning Fewer hospitals going it alone as financial strains force consolidation

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Joseph A. Trunfio, president and CEO of Atlantic Health System, says physician relationships are the cornerstone to finding the right partner.
Joseph A. Trunfio, president and CEO of Atlantic Health System, says physician relationships are the cornerstone to finding the right partner. - ()

Continuing consolidation in health care could mean that, before the year is over, New Jersey will have fewer than 16 independent hospitals. Because of the need to expand financial risk over a larger population of patients, independents are considering integration with other acute-care providers, or with physicians and other specialty groups.

While the New Jersey market has been historically fragmented, hospitals like Hunterdon Medical Center and Chilton Hospital have reached out this year to larger systems to improve their geographic footprints, access to capital and increased services. For these facilities, finding a system to partner with starts in the backyard.

"The first iteration of consolidations were in those counties where they had a large number of hospitals, and the changes in health care no longer required that many inpatient hospital beds," said Joseph A. Trunfio, president and CEO of Atlantic Health System, which has answered several requests for proposals from independent hospitals.

Trunfio said after that round of consolidation, in the 1990s, the remaining independent hospitals generally were the sole facilities in their counties, as was the case for Somerset Medical Center and Hunterdon. "Those hospitals had almost a two-decade long role where their independence … allowed them to flourish."

Today, there are 19 independent hospitals in New Jersey and several hospitals that belong to large nationals systems, but operate like independents, since they are the lone facilities in state. Hackettstown Regional Medical Center and the Memorial Hospital of Salem County are two such examples.

Consolidation has been fast paced this year. For example, Warren Hospital joined Pennsylvania-based St. Luke's Hospital & Health Network, while Mountainside Hospital left Kentucky-based Merit Health System to join the newly formed Hackensack University Health Network. That network is comprised of formerly independent Hackensack University Medical Center, LHP Hospital Group Inc. and, eventually, Hackensack University Medical Center at Pascack Valley.

Hackettstown Regional Medical Center is part of the Maryland-based nonprofit system Adventist Healthcare, but President Jason Coe said the hospital issued an RFP earlier this year in order to find sensible local partners.

"As health care evolves, it's looking like something more New Jersey-based would be more beneficial to us in the long run," Coe said. "The ability to function in the future under health care reform … and the need to be effective not only inside the hospital, but outside the hospital, really leads us to needing access to different types of networks (and) support to create physician relationships."

The hospital's goals include expanded services, continuing to provide charity care and growing the facility — which requires "a level of infrastructure that I believe a small hospital can do, to a degree," Coe said, but balancing many challenges and relationships becomes more difficult as the number increases.

According to Trunfio, physician relationships are a cornerstone to finding the right partner, as natural physician referral patterns have been established over the years.

"For years, Chilton, St. Clare's, Newton, Hackettstown, and to a lesser extent, Warren, Somerset and Hunterdon have traditionally referred (patients) … into Morristown and Overlook, and that's been the history. You fast forward now a decade, those are the natural markets."

Atlantic Health has replied to Hackettstown's RFP, but confidentiality agreements prevent either provider from discussing the process.

Some independent hospitals that are not interested in joining other acute-care providers in a system have expanded their patient base and geography by integrating vertically. Valley Health System, for example, consists of The Valley Hospital as the acute-care provider, along with seven Valley Health Medical Group urgent-care facilities, a cancer center, a renal care facility and a home care practice.

Valley also has been aggressive in expanding its relationships with physicians.

"The challenge for hospitals is to develop strategies that will enhance the quality of their care and improve their operational performance while reducing costs," said Audrey Meyers, president and CEO of Valley Health. Meyers said the hospital is focusing on an accountable-care organization, the acquisition of a number of physician practices, and the establishment of physician/hospital co-management agreements.

For Princeton HealthCare System, another vertically integrated system, the preference is to remain the sole acute-care provider and expand through other health care services, "and I think it means there is pressure on us to do something significant geographically," said President and CEO Barry Rabner.

Trunfio said he expects the landscape for independent hospitals to be much clearer by the end of the year, when many of the RFPs have shaken out and consolidation slows.

"I think in our geography, those partnerships will be defined by year-end," Trunfio said. "I think in the evolution of health care, whether its schools or industry, there's a time and a place where what you do is invaluable to your community. … What was appropriate, and needed, and very valuable, is transforming. It's not going away, but it's transforming into the next iteration of health care for a community."

E-mail to: melindac@njbiz.com
On Twitter: @MCaliendo33

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