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RWJ announces it will acquire Somerset Medical Center, ending months of speculation

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Somerset Medical Center today announced it will pursue a merger with Robert Wood Johnson University Hospital, in New Brunswick.

The news comes just one day following the disclosure that its talks had ended with Atlantic Health System, which on Wednesday signed an alliance with Hunterdon Healthcare.

The Somerset deal is not yet final; a definitive agreement is close to being consummated, according to Paul V. Stahlin, chairman of Somerset's board of trustees.

"Academic medical centers offer the highest quality of care, including state-of-the-art diagnostic treatment services for the most serious medical conditions, cutting-edge medical research, and innovative techniques to improve patient outcomes and survival rates," Stahlin said in a statement.

NJBIZ has reported repeatedly in its Grapevine column that Somerset was a takeover target of interest for a number of New Jersey hospitals.

The pending merger comes at a time when hospitals of all sizes across the state and nation are re-evaluating and significantly changing their operational strategies and delivery models to cope with growing financial challenges, the statement pointed out. In particular, health care experts have been warning for years that it will be increasingly difficult for standalone community hospitals to remain independent, given the downward pressure on reimbursements from Medicare and commercial insurers.

David Knowlton, president of the New Jersey Health Care Quality Institute, said these are volatile times in the hospital sector in New Jersey, with major mergers and alliances being announced or under discussion.

He gives hospital mergers a mixed review from a policy standpoint: Mergers are good if they achieve economies of scale and expand services, he said, but the risk is that they will reduce competition and increase health care costs.

“RWJ is doing it to expand its reach into the Somerset region, and Somerset is doing it to expand access to needed specialists that RWJ has a variety of," he said. "In that case, where it’s expanding service delivery, it’s probably a great idea. What you have to do is kind of wait and see how it plays out in the marketplace, and is it going to affect their prices.”

He said about five years ago, hospitals were merging to gain increased bargaining clout with insurance companies, “but now, when everyone is trying to bend the cost curve, you have to have a broader base to spread those administrative costs over.”

He said hospitals need to expand their footprint so their administrative burden is spread over a wider variety of institutions.

"As our nation's health care system continues to evolve into one which ensures the health of entire populations, rather than focus on delivering episodes of care, this new strategic partnership with Somerset Medical Center better enables us to care for the people of the region," said John R. Lumpkin, chair of RWJ University Hospital's board of directors.

Somerset Medical Center is a 355-bed acute care hospital in Somerville that serves central New Jersey. RWJ is a 600-bed academic medical center and the principal hospital of UMDNJ-Robert Wood Johnson Medical School, in New Brunswick.

Beth Fitzgerald

Beth Fitzgerald

Beth Fitzgerald reports on health care, small business and higher education. She joined NJBIZ in 2008 after a 34-year career at the Star-Ledger and has been reporting on business in New Jersey since 1978. Her email is beth@njbiz.com and she is @bethfitzgerald8 on Twitter.

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