Saint Mary's Hospital To Be Acquired By Tenet Healthcare

Saint Mary's Hospital CEO and President Chad Wable (MICHAEL McANDREWS | mmcandrews@courant.com)

A Texas-based hospital chain that is buying four Connecticut hospitals said in a surprise announcement Tuesday it will add a fifth to its roster: Saint Mary's in Waterbury.

Connecticut's legislature this year passed a bill allowing for-profit hospitals to employ doctors, removing a hurdle that jeopardized Tenet Healthcare Corp.'s plans to buy four nonprofit hospitals in Connecticut: Waterbury, Bristol, Manchester Memorial and Rockville General.

Tenet Healthcare said it had been in talks privately with executives at Saint Mary's for some time, but the hospital's board had to approve the acquisition, which it did last week.

Tenet Healthcare is an investor-owned, for-profit health care system based in Dallas that operates 79 acute-care hospitals and 193 outpatient centers across the nation. As with the other hospitals, the Saint Mary's acquisition is pending state and federal regulatory approval and other conditions.

The agreement offers a small, Catholic hospital known for its charity care to have the backing of a large health care system and the economies of scale that come with it: stronger negotiating power with health insurers over reimbursement rates, and greater purchasing power for biomedical equipment and pharmaceuticals.

"At Tenet, we have national contracts in place with many of the major payers, and our hospitals see value in that. … that provides contract stability and pricing predictability," said Steve Campanini, spokesman for Tenet Healthcare. "In terms of group purchasing, our hospitals benefit from levering national agreements and purchasing and also the ability to move equipment and materials around depending on need, especially in the event of an emergency."

In March, Yale New Haven Health System and Tenet formed a partnership to create "a comprehensive health care delivery system in Connecticut," which was in addition to Tenet's previously announced plans to acquire Bristol Hospital, Waterbury Hospital and the Eastern Connecticut Health Network, meaning Rockville General Hospital and Manchester Memorial Hospital. The Tenet-Yale partnership did not need state approval because both will remain separate entities.

At Saint Mary's, the hospital's Catholic heritage and its ethical and religious directives will be honored and maintained, Tenet said. Saint Mary's confirmed that it will not perform abortions or tubal ligations under the new ownership.

Waterbury Hospital and Saint Mary's talked about merging in 2012 and 2013, but they disagreed about whether tubal ligations would be performed at the newly merged hospital.

"We respect the dignity of life and all of the Catholic teachings, and so we're not going to, as we never have done, endorse or support anything that's outside of those Catholic teachings," Saint Mary's CEO Chad Wable said Tuesday.

"The most important thing for the layperson on the street is to know that it's not going to change, that we're still committed to providing charity care."

Saint Mary's had annual revenue of $571.6 million in fiscal 2012, the most recent information available through the state Office of Health Care Access. The customer base included 35 percent who have non-government medical coverage; 39 percent in Medicare; and 23 percent on Medicaid. Three percent were uninsured.

Saint Mary's has 347 licensed beds and satellite services in Wolcott, Naugatuck, Southbury, Prospect and Watertown. The hospital employs about 1,800 people, who are nonunion, Wable said. The acquisition won't change the number of employees, he said.

"We have agreements in place with Tenet to employ all of our staff here and to offer them very competitive benefit packages and to honor seniority, and, so, there's not a lot of change with respect to that," Wable said. "This also allows us to fully fund our pension plan."

Part Of A Trend

The annual number of hospital mergers and acquisitions in the U.S. increased steadily over a decade, from 37 in 2003 to 108 in 2012, according to Health Care M&A Information Source, a division of Norwalk-based Irving Levin Associates, which has provided Wall Street investors with business intelligence on health care mergers for decades.

Hospital mergers and acquisitions slowed last year when certain tax breaks expired and new taxes took effect, according to the 2014 Health Care Services Acquisition Report by Levin. At 85 total mergers and acquisitions, last year was still well ahead of the annual average for the decade, coming in behind 2012 and 2011.

Fueling hospital mergers and acquisitions is the purchasing power of a large company when it buys biomedical equipment or wholesale pharmaceuticals. Additionally, larger hospital companies are in a better position to negotiate reimbursement rates with health insurers for everything from surgeries to routine procedures. Hospitals and insurers are centering some of their attention on reducing medical costs while improving medical care. For example, the U.S. Centers for Medicare & Medicaid Services offers incentives to reduce hospital readmissions.

"Hospitals are having to change their whole model, their whole way of doing it," said Lisa E. Phillips, editor of Health Care M&A News. "It isn't just 'heads in beds' anymore. They've got to practically keep people out of the hospital."

It's not clear how long the regulatory approval process will take, though Wable is hopeful the acquisition could be completed within six months. Tenet would not say when it hopes its acquisitions of the five hospitals will be complete.

"We have several regulatory steps ahead of us and will work diligently to comply with the process as expeditiously as possible," Tenet spokesman Campanini said. "We will have more information about timing as we get into the initial phases."

Part of the uncertainty is how quickly the transactions are approved by regulators.

Hospitals are regulated by several state agencies, including the state departments of Public Health and Social Services.

Hospitals that serve a low-income population receive additional Medicaid reimbursement for their "disproportionate share," according to the Office of Legislative Research. The federal Affordable Care Act incrementally reduces hospital reimbursements for disproportionate share starting in 2014 because of the expectation that more people will have medical coverage through a government program, such as Medicaid, or through private health insurers.

Financial Pressures

Hospitals are under financial pressure because of low rates of reimbursement from government-funded programs such as Medicaid, near-constant contract battles with private health insurers that are trying to hold down prices and uncompensated care that hospitals are required to provide to anyone who shows up but has no ability to pay for treatment.

"A lot of these small, stand-alone ones are in trouble, and that's why they're being sold. I mean the small, not-for-profits that are financially on the edge, they have to look for somebody to buy them, or to partner with, or something," Phillips said.

After Tuesday's announcement, Gov. Dannel P. Malloy released a statement saying: "I am glad to have signed legislation last month that helped today's announcement come to fruition and I look forward to working with Tenet and Saint Mary's to ensure a smooth process that continues to serve the Waterbury community."