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Hackensack, Meridian sign definitive agreement to merge

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From left are Joseph Simunovich, chairman of Hackensack University Health Network board of trustees; Robert C. Garrett, CEO and president; John K. Lloyd, CEO and president of Meridian Health; Gordon Litwin, chairman of Meridian Health board of trustees.
From left are Joseph Simunovich, chairman of Hackensack University Health Network board of trustees; Robert C. Garrett, CEO and president; John K. Lloyd, CEO and president of Meridian Health; Gordon Litwin, chairman of Meridian Health board of trustees. - ()

Meridian Health and Hackensack University Health Network said Tuesday they have signed a definitive agreement for the two health systems to merge into Hackensack Meridian Health and form the state's largest health care system, with $3.4 billion in revenue.

The merger announcement last Oct. 16 kicked off seven months of due diligence: a review of clinical, regulatory, service and financial issues that is now finished. The deal still needs state and federal regulatory clearance, which the health systems expect to take nine to 12 months.

Once completed, Hackensack Meridian Health will have about 25,000 employees and nearly 6,000 physicians on staff. 

And while the merger will make Hackensack Meridian Health the state’s largest health care system, it may not hold the distinction for long.

Barnabas Health, currently the state’s largest health system with about $3 billion in revenue, is in discussions with Robert Wood Johnson Health System. That potential merger would create a system with roughly $4.5 billion in revenue.

Hackensack University Health Network CEO Robert C. Garrett said mergers are the way of the future — and a positive for the industry.

“There is no doubt that more and more health care is being delivered outside the four walls of the hospital,” he told NJBIZ. “I think consumers and business are seeing better value in the system because many of those procedures can be done on an outpatient basis. So from that perspective it has helped to curb the rising health care cost.”

Once the Hackensack Meridian Health merger is fully approved, Garrett and Meridian CEO John Lloyd will serve as co-CEOs for two and a half years, after which Lloyd will retire. Garrett will then become the sole CEO. There will be a corporate board with an equal number of trustees from each system.

The merged system will have 11 hospitals — but the two CEOs said during an interview with NJBIZ that they are well along in the transition to a world where the majority of health care services are delivered on an outpatient basis.
“We have been at this for many years,” Lloyd said. “We are in 100 locations and have an ambulatory facility within 10 to 15 minutes of every resident (in the Meridian service area).

“This did not happen overnight, we have been diversifying into the ambulatory care area for the last three or four years. We will each share our own experience about how we have developed a continuum of care so that we can accelerate the services out to the community and the patients and residents who need them.”

Garrett said a goal of Hackensack Meridian Health is to have a health care center or a hospital within 10 to 15 minutes of all the residents in the seven counties the two systems cover.

“That is a pretty lofty goal and it is the right thing to do for the citizens of New Jersey, for the access to care they are looking for,” he said.

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The combined entity will have 11 hospitals — Jersey Shore University Medical Center, Neptune; Ocean Medical Center, Brick; Riverview Medical Center, Red Bank; Southern Ocean Medical Center, Manahawkin; Bayshore Community Hospital, Holmdel; Raritan Bay Medical Center, Old Bridge; Raritan Bay Medical Center, Perth Amboy; Hackensack University Medical Center, Hackensack; HackensackUMC Mountainside, Montclair; HackensackUMC at Pascack Valley, Westwood; and Palisades Medical Center, North Bergen; and, two children’s hospitals — K. Hovnanian Children’s Hospital in Neptune and Joseph M. Sanzari Children’s Hospital in Hackensack.

The system will also have a network of physician practices, ambulatory surgery centers, home care, long-term care and assisted living facilities, ambulance services, fitness and wellness centers and outpatient centers.

Both executives said the Affordable Care Act has presented both opportunities and challenges to their health care systems.

The ACA, they said, has enabled several hundred thousand more New Jerseyans to be covered with health insurance, either through Medicaid or via subsidized coverage on HealthCare.gov. However, they pointed out that many consumers purchased high-deductible health plans under the ACA, to minimize their premiums — and some have been unable to pay those deductibles, which can amount to several thousand dollars a year.
That, Garrett said, is an issue.

“We are seeing the bad debt increase because people are not able to financially pay their bill,” he said.

Most of the state’s hospitals saw their charity care support from the state reduced this year, on the assumption that Medicaid would cover more of the cost. And while many of those previously uninsured are now covered, the business model isn’t necessarily working smoothly.

“Unfortunately, hospitals, by and large, have seen a significant increase in bad debt due to the fact that more and more people have high-deductible (plans),” Garrett said.

Both Garrett and Lloyd feel the merger is a step in the right direction. 

“We are very excited we have a great opportunity to be a leader in the state and maybe the region and nationally, with two outstanding health systems being able to integrate their strengths and be able to serve a lot of geography with a lot of ambulatory services,” Lloyd said. “Both our organizations are about patient care and we believe our patients should have access to outstanding ambulatory and inpatient care, and we want to lead the way.”
Garrett said the merger is about more than just size.

“It’s what each organization brings to the table,” he said. “There are mergers that are just about size but they don’t work. This is a very synergistic merger.”

The head of each board agreed.
Gordon Litwin, chairman of the Meridian Health board, said, “From the beginning we knew that we were embarking upon a great relationship that would have tremendous benefits to residents within our service areas and I could not be more pleased with the process that got us here today, which will, in the end, create one of the most comprehensive patient-focused and quality-driven health care systems in the state.”

Joseph Simunovich, chairman of the board of HUHN, agreed.

“This period of due diligence has affirmed that our combined organizations will expand access to services and further develop a vast array of new hospital services to much broader geography,” he said.

Linda Schwimmer, vice president of the New Jersey Health Care Quality Institute, said there are definite advantages to health system mergers.

"As health care systems look to create economies of scale and spread the cost of investment into expensive health information technology systems, it is no surprise that they are looking for ways to reduce administrative costs by spreading them across larger systems.  Both systems have significant strengths that the other will be able to leverage.  Moreover, with a strong presence in two of the regions with the highest concentration of retirees, there are opportunities for branded regional plans either on their own one day or in partnership with health plans."

Schwimmer said the state "is moving towards a more consolidated market with ultimately half a dozen large systems across the  state.  Consumer groups like the Quality Institute want to make sure that those systems are high quality, transparent about their quality, work to control costs, and truly engage patients and caregivers to deliver the care that addresses their needs."


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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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