Though some resist, more hospitals joining networks

Clarence Silvia led Southington’s Bradley Memorial Hospital through its first move up the food chain, a 2006 merger with New Britain General. It was critical, he believes, for the hospital’s survival in an era of tight margins and pressure to invest in new systems like electronic medical records.

“I do not know how Bradley would be able to navigate through that without some type of relationship with another institution,” said Silvia, president and CEO of The Hospital of Central Connecticut, the product of the merger.

Now Silvia is leading the hospital through another change, a plan to join the Hartford Healthcare network, which already includes Hartford Hospital, MidState Medical Center in Meriden and Windham Hospital. The affiliation is awaiting approval from the Federal Trade Commission.

Affiliations between hospitals have become increasingly common as a way to increase efficiency, access capital and adapt to changes under health reform that are expected to make finances even tighter.

Nationally, the share of hospitals that belong to systems grew from just over 50 percent in 1999 to 57 percent in 2008, according to the American Hospital Association.

The trend is less pronounced in Connecticut, where less than half of the state’s 30 acute-care hospitals belong to systems. The most recent to affiliate, Danbury and New Milford hospitals, received state approval for the arrangement last month.

But the gradual movement toward networks and changes in health care have led some experts to predict that the state will ultimately have a small number of large hospital systems. A commonly used line in health care circles states that Connecticut will one day have just two hospital systems, one based around Hartford Hospital and one based around Yale.

Dr. J. Robert Galvin, the state’s commissioner of public health, takes a similar, if more nuanced, view. In five to 10 years, he expects, the hospital landscape will be dominated by three entities: A group based around Danbury Hospital, a “northern tier” made up of the Hartford Healthcare system, and the hospitals associated with Yale-New Haven Health Services, with some smaller hospitals outside those groups.

Not everyone sees affiliation as key to survival. Middlesex Hospital in Middletown entertained the idea of joining a network before deciding to remain independent. And St. Francis Hospital and Medical Center in Hartford does not see affiliating as key to its future.

“Bigger is not necessarily better,” St. Francis President and CEO Christopher Dadlez said. “We’re focused on being better.”

And consolidation can raise concerns, such as increased prices if a few large organizations dominate the market and command higher rates from insurers.

When Size Matters

Those who have joined networks cite several factors for their decisions. Even leaders who don’t plan to affiliate acknowledge the forces pushing others to do so.

Hospitals already operate with tight margins. Health reform is expected to bring more modest reimbursement rates from government payers while increasing the requirements hospitals face, forcing hospitals to trim costs without sacrificing quality.

Affiliated hospitals can consolidate back-office functions and team up to recruit doctors or purchase costly equipment. Larger organizations can better access capital to build or upgrade facilities or to purchase big-ticket items like CT scans or electronic medical records systems.

“Just by mere size, we’re going to be able to save dollars on the purchasing side, and there are efficiencies that can be achieved,” Silvia said.

Galvin noted that small hospitals that once offered comprehensive services have a harder time doing so now that many profitable procedures are complex and require a high level of staff and patient volume.

“It’s just very hard for a medium or a smaller-sized community-based institution to be able to offer the array of services that people want and to keep their costs at reasonable levels,” he said.

Connecticut has been slower than other states in developing large hospital systems, and the systems here are far from the nation’s largest hospital chains. Denver-based Catholic Health Initiatives, for example, includes 73 hospitals in 18 states.

The largest Connecticut system has three hospitals – Yale-New Haven, Bridgeport and Greenwich.

In the past, hospital trends have been slow to arrive in Connecticut, and the same appears to be true with affiliation, said Middlesex Hospital President and CEO Vincent Capece.

“Health care is very much a local industry here, and every town seems to have its own hospital and seems to do things its own way,” he said. “I think that there’s a lot of resistance to consolidation. At least there has been up until now.”

Staying Independent, For Now

Unlike many hospitals looking for partners, Middlesex Hospital was not struggling financially, posting some of the highest margins in the state over the past five years.

Capece said the hospital saw an affiliation as a way to get ahead of the curve and improve quality and market position.

But joining another organization would have required giving up some control, which proved to be a stumbling block. And so, after two years of analysis, Middlesex’s board opted to keep the hospital independent, at least for now.

While larger systems can in theory bring economies of scale, Capece said they might not be realized. Mergers and affiliations can bring new risks to each hospital, add bureaucracy, and the challenges of joining two different cultures, Capece said.

“There were lots of potential advantages that we identified, but the amount of benefit that was guaranteed or that was pretty concrete was not sufficient enough for us, at least at this point in time given our position,” he said.

Not all hospitals have the flexibility to make decisions the way Middlesex did.

“If you’re in a very difficult position financially, those types of issues are easier to get by because it’s either stay in business or don’t stay in business, and issues of control are less of an issue,” Capece said.

St. Francis, the largest hospital in the state not in a system, is not pursuing affiliations with other hospitals, although it has not ruled out the possibility.

“If there are opportunities, and it comes, it comes,” Dadlez said. “But we’re not out there hunting for partners in a sense or hunting to take over other organizations. We just don’t think that’s appropriate or necessary.”

For now, St. Francis is focusing on a different type of system, building a network of ambulatory care centers, home care agencies and long-term care facilities that can supplement inpatient care.

It’s a model that many hospitals are developing and see as critical for keeping up with the requirements of health reform.

Still, Dadlez believes there will be consolidation in the hospital market over the next five to 10 years.

St. Francis is big enough, at least for now, Dadlez said. He predicted that the organization would be bigger at some point. In the past, for example, there has been talk of the state’s four Catholic hospitals forming a system.

Survival of the Small

Bristol Hospital has taken another approach, remaining independent but affiliating with other hospitals for specific services. The hospital partners with St. Francis on laundry and laboratory services, and with Yale-New Haven for purchasing. Bristol’s cancer center is affiliated with the Yale-New Haven Cancer Network, giving patients in Bristol access to clinical trials and specialists that the community hospital would not have been able to afford – or have the patient volume to justify – on its own.

As for an overall affiliation, President and CEO Kurt Barwis said the hospital’s board consistently considers what will be necessary to keep care accessible to the community, whether that requires an affiliation, and how to best position the hospital in case an affiliation becomes necessary.

While Barwis expects more hospitals to join together, he also sees some changes in health care favoring community hospitals. One is a push toward accountable care organizations, in which providers are responsible for the cost and quality of care delivered to patients. That will put a premium on collaborating with community-based providers, Barwis said.

“I think community hospitals have a tremendous role to play in the future because they tend to be very much aligned with the primary care networks,” Barwis said. “Your medium-sized hospitals aren’t saddled with a significant infrastructure, and I think they can do a good job.”

Community hospitals can deliver the vast majority of services and develop relationships with other hospitals for more specialized care, Barwis said. Patients at Bristol who need cardiac catheterization get transferred to St. Francis, for example.

Galvin sees as similar model as the way small hospitals can survive: Focusing on outpatient care and providing more community-based services such as geriatric care or Alzheimer’s centers. Services patients receive regularly, such as outpatient psychiatry, could be done at community hospitals, while complex procedures that patients don’t receive regularly, such as heart surgery, could be done at larger hospitals.

In Connecticut, many people have attachments to their local hospitals, Galvin noted.

“There’s an awful lot of personal feelings about the institution being in and part of the community,” he said. “It’s important, as the structure changes, to preserve those community ties so that people feel it’s their hospital.”