Tennessee-based Community Health Systems moved one step closer Wednesday to further consolidating regional health care and shoring up its grip on market share in Northeast Ohio and just across the state line in Mercer County.
CHS, which purchased Forum Health in August 2010 and assumed ownership of more than 800 hospital beds in the Mahoning Valley when it acquired Northside Medical Center, Trumbull Memorial Hospital and Hillside Rehabilitation Hospital, has executed a letter of intent to purchase the assets of Sharon Regional Health System in a deal that could be completed by the end of this year.
The move comes less than a week after CHS and the Cleveland Clinic entered exclusive negotiations to purchase certain assets of Akron General Health System, including Akron General Medical Center, the Edwin Shaw Rehabilitation Hospital in Cuyahoga Falls, the Lodi Community Hospital and other facilities throughout the region.
In March, CHS entered a strategic partnership with the Cleveland Clinic, a nationally renowned teaching hospital, considered by many to be Northeast Ohio’s premium health-care provider. At the time the partnership was announced, CHS said it would enhance the quality of patient care, improve access to health-care services and drive down costs throughout the region.
Last week, CHS and the Clinic also announced the formation of a limited- liability company to complete the purchase of the Akron General Health System.
“Many hospitals and health-care systems are aligning with partners that can support their operations with the significant resources and management expertise required to be successful in this dynamic period of change across our industry, especially as health-care reform takes effect,” said John R. Janoso Jr., president and chief executive officer of Sharon Regional, in a statement.
A.J. Rice, an equity analyst at UBS Securities, said CHS’ partnership with Cleveland Clinic has significantly raised its profile in Ohio and likely helped to attract Sharon Regional’s interest.
“With health reform on the way a lot of stand-alone hospitals are looking to line up with a bigger organization that has more capital,” Rice said. “If a hospital is looking to [merge or sell] they have multiple options, but having an affiliation with Cleveland Clinic definitely helps put [CHS] at the top of the list in that region.”
By executing a letter of intent, said Sharon Regional spokesman Ed Newmeyer, the purchase process will start with CHS examining the system’s operations. Both sides will continue to negotiate and outline the terms of any purchase deal. A final agreement could be reached within the next three months, he said.
CHS owns and operates 135 hospitals in 29 states, including 17 in Pennsylvania. The publicly traded company has a market value of about $3.8 billion, and its share price steadily moved upward after the tentative agreement was announced, closing up 11 cents at $40.66.
For Sharon Regional, Mercer County’s largest employer with a nonunion workforce of 1,800 people, the deal will mean capital investment and a possibility to work at improving patient care and services through the Cleveland Clinic, Newmeyer said.
“It’s too early to tell where that investment would be, but we’re extremely excited about significant capital investment,” he said. “Whether it’s in new technologies or modernizing our facilities is hard to say. That will be determined as we work through the agreement.”
After President Barack Obama signed the 2010 Affordable Care Act into law — a piece of legislation that will require nearly all Americans to purchase health insurance or pay a fine beginning in 2014 — changes were made that will augment Medicare and Medicaid payments to hospitals and, in some instances, affect patient access to providers.
At the same time, hospital consolidation has some fearing that prices will increase as competition dwindles, while larger health-care conglomerates have been looking to get ahead of the ACA because it links reimbursement to quality of care and makes the efficiencies of systems or networks more appealing.
“There are perceived benefits and concerns. It’s difficult to say how connected [consolidation] is to the ACA because this has been going on for years,” said Amy Rohling McGee, president of The Health Policy Institute of Ohio.
“I think the jury is still out about whether it’s good or bad for consumers and pricing, but the changes to Medicare payments align with quality indicators, and systems are looking at how to do that in a way that brings down costs.”
The early agreement provides CHS with all Sharon Regional’s assets, including a 251-bed hospital. The system is Mercer County’s largest health-care provider, and it also boasts 23 satellite offices. Those include the Sharon Regional Medical Park in Hermitage, which offers diagnostic imaging, cancer care and a behavioral health outpatient center, as well as a diagnostic and specialty center in New Castle.
The deal would grow CHS’ footprint in Northeast Ohio, too. Sharon Regional owns and operates the Hubbard Diagnostic & Specialty Center, the Brookfield Family Medicine Center and the Liberty Family Medicine Center.
Newmeyer said Sharon Regional’s board conducted a yearlong review of potential buyers, aimed at retaining local control.
“We engaged in a thorough and thoughtful process to ensure the best possible future for Sharon Regional and determined that affiliating with CHS, a highly regarded national health-care organization, provides the greatest opportunity for building our future success,” said William Strimbu, chairman of the board of Sharon Regional.
Any purchase will keep intact a local board, and Newmeyer said Sharon Regional’s workforce will not be reduced in any way.
Newmeyer added the 115-year-old system would require a parent company to meet the challenges of the future and to continue to offer premium health care to those of the Shenango Valley and beyond.
Tomi Galin, spokeswoman for CHS, said the company does not discuss any aspects of a nonbinding agreement, but said officials there are excited about the prospects of finalizing the purchase agreement.