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Avoiding a merger: Hospitals affiliate to gain benefits while maintaining independence

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Warren Geller, chief executive of Englewood Hospital and Medical Center.
Warren Geller, chief executive of Englewood Hospital and Medical Center. - ()

Hospital mergers aren't the only path to the cost savings and superior patient outcomes demanded by care reform.

Affiliations among hospitals and health care systems, like the one just announced by Englewood Hospital and Medical Center and the Hackensack University Health Network, are becoming a popular way for hospitals to remain independent while tapping the clinical and financial leverage that comes from joining forces with a bigger partner.

Warren Geller, chief executive of Englewood, said it was critical for his organization keep its own identity — something the affiliation with Hackensack will accomplish.

“We are going to remain independent; it works well for us,” Geller said. “We have a tremendous track record of financial stability and philanthropy, of people supporting our medical center, which is very important to us.”

He said both Hackensack and Englewood “are proud of our brands and our cultures.”

One thing the affiliation will do is bring Englewood the benefits of the substantial technology investments Hackensack has made in the last few years. Advanced health IT systems are required to track patient care and health outcomes as the industry transitions to a future where it’s expected to keep people healthy, not just treat illnesses and injuries.

“When you take the system that Hackensack spent several years building, and we can take the research and expertise that went into that and implement it here at Englewood — there are significant savings in that,” Geller said.

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Englewood is an academic medical center that trains resident physicians, and Geller said the affiliation will enable his program to grow in tandem with the new medical school Hackensack is launching in partnership with Seton Hall University.

Englewood’s residency program is sponsored by New York’s Mount Sinai School of Medicine; next year, Englewood will switch to Seton Hall University, and the new medical school will be the sponsor following its launch, targeted for 2017.

Geller said Englewood has a total of 49 residency slots; 39 are Englewood residents being trained in internal medical, and 10 are residents from other programs who rotate through Englewood as they are trained in emergency medicine, critical care and surgery.

He’s optimistic that the affiliation with the new Seton Hall/Hackensack medical school could enable Englewood to get more residency slots

“We will look at our needs on our medical staff and see where we need to build, in which specialties, and hopefully develop training programs,” he said. One area could be cardiology, a major program at Englewood. The medical center is building a new 180,000-square-foot cancer center, “so it’s going to make sense for us to train the next generation of experts within all the different areas of oncology.”

The health care map of New Jersey is crisscrossed with affiliations — and occasionally they morph into mergers.

After working closely together in the AllSpire Health Partners alliance, created in 2013 so hospitals could share best practices, Hackensack and Meridian Health earlier this year announced they will merge into a $3.44 billion health system, the largest in the state.

And while Hackensack’s affiliation with Palisades Medical Center led to the merger of Palisades into the Hackensack network earlier this month, Hackensack maintains numerous clinical affiliations that don’t involve mergers.

RELATED: Hackensack, Englewood hospital create clinical, academic affiliation

Valley Hospital in Ridgewood in December announced a strategic alliance with New York's Mount Sinai Health System, a move Valley Chief Executive Audrey Meyers said does not foreshadow an eventual merger of the two institutions. And earlier this month Valley launched a cardiac care affiliation with the Cleveland Clinic, which for the past 20 years has been ranked No. 1 for heart care by U.S. News & World Report.

Other affiliations around the state include Cooper University Health System’s 2013 affiliation with Houston’s prestigious MD Anderson Cancer Center.

In January, Inspira Health Network in southern New Jersey announced an affiliation with Philadelphia's Thomas Jefferson University and Health System aimed at increasing specialty health care services to residents in South Jersey. Inspira and Jefferson plan to build a new ambulatory care facility in Gloucester County.

Last October, Summit Medical Group, one of the state’s largest multispecialty physician practices, announced an affiliation with MD Anderson in which Summit will build a new outpatient cancer center in Northern New Jersey.

Earlier this month, Hackensack and Summit Health Management, an affiliate of Summit Medical Group, announced a partnership they predicted will lead to the creation of the largest physician group in the state, with about 1,500 providers.

Some health care experts contend hospital mergers drive up health care costs, because larger systems have more clout when negotiating reimbursement rates with health insurers and other payers. In that view, affiliations are a less inflationary alternative.

Joel Cantor, director of the Rutgers Center for State Health Policy, said, “Affiliations have lower transaction costs than formal mergers” and “do not necessarily offer the opportunity to expand hospital bargaining leverage with payers.”

Cantor said affiliations “offer other advantages, such as enhancing capacity to deliver a broader range of services and creating new branding opportunities when affiliations are with high-prestige institutions,” such as MD Anderson and Cleveland Clinic.

And he said affiliations also bring new opportunities for quality and efficiency improvement if the new partners bring new clinical expertise and data and analytic capacity. Cantor said: “Medicare and other payers are moving rapidly into payment systems that reward quality outcomes, as well as efficiencies. I suspect that, together with improved branding, is driving many of these affiliations.”

RELATED: Hackensack, Summit set to partner, create state's largest physician group

Linda Schwimmer, vice president of the New Jersey Health Care Quality Institute, said, “I think that the trend toward affiliations will increase as hospitals hone in on two current realities: they can't be all things to all patients in a value-based, outcome-based payment world; and, care will continue to migrate outside the hospital walls.”

Schwimmer said: “This trend, in my opinion, is a good thing for patients and payers. Community hospitals will focus on what they are good at (leading to higher quality) and send their patients to centers of excellence for more complex care. These same hospitals are also affiliating with physicians and ancillary health care centers to create stronger community connections and develop a continuum of care, which should lead to improved communications, better outcomes and reduced costs.”

And she pointed out that the Federal Trade Commission is keeping close watch on hospital mergers that could reduce competition: “The antitrust watchdogs still cast a suspicious eye at too much regional consolidation and the health systems' underlying motives. Given the cost of health care, that is a healthy tension.”

Englewood was founded 125 years ago and has the financial strength to remain independent; Geller said Englewood, which had revenue of $438.6 million last year, has generated a surplus from operations for the past eight years.

“But in the new era of health care, you need to collaborate to participate in advanced systems, in population health management and in training and research,” Geller said.

He challenged the view that hospital consolidation inevitably leads to higher medical bills. Geller said Englewood participates in value-based contracts and pay-for-performance contracts “with both penalties and bonuses built in.”

Those new payment models “are a small percentage today, but we see that growing rapidly. What you’re going to see is a transition from a transaction-based system to one where you actually get paid for value. This is a new world order that we are embracing, and we’re looking forward to where it’s taking us.”

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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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