St. Joseph plans to narrow its search for a new "strategic partner" in coming weeks, but analysts say it may not offer enough new paying patients and other immediate financial benefits to outweigh the liabilities — including hundreds of lawsuits and declining revenue.
The longer a deal takes, "the more the hospital loses volume and status, and that is not only lowering the sale price but making it more unlikely that anyone will be willing to buy it," said Gerard F. Anderson, director of the Center for Hospital Finance and Management in the Johns Hopkins Bloomberg School of Public Health.
"Hospitals want to buy viable, successful entities, and St. Joseph is not appearing to be that," he said.
Anderson said that across the country, for-profit hospital systems don't shy away from distressed hospitals because they can add new customers, increase negotiating power with insurers and possibly get a tax break if there is debt. But Maryland has a unique rate-setting system that could prevent a buyer from raising prices and quickly reversing the revenue slide.
According to state records, St. Joseph's patient net revenue fell from $361 million in fiscal 2009 to $299 million in fiscal 2011, which ended June 30. Patient admissions dropped from 35,486 to 26,942 over the same period. The hospital has also told state officials it was losing doctors.
Without a buyer, Anderson said, he would expect the hospital to shut its expensive inpatient facilities, including 263 beds, and operate only outpatient services such as doctors' offices and surgical centers.
The outcome rests on the needs of other hospitals and the community, agreed Joshua Nemzoff, president of Nemzoff & Co., a New Hope, Pa.-based hospital acquisitions consulting firm. He said other hospitals may want to enter the area or keep someone else out. Or they may want insured suburban patients to offset their urban uninsured.
The buyers could cut costs by combining administrative functions and reducing staff. They could maintain all the services, eliminate some, or even close the facility entirely and try to steer patients to their hospitals, though he thought the last option was unlikely.
They will likely require that St. Joseph's parent, Denver-based Catholic Health Initiatives, a nonprofit faith-based 72-hospital system, assumes all responsibility for the lawsuits that followed accusations of unnecessary stent procedures.
"They'll find someone who wants it, even if they have to give it away," said Nemzoff, adding that other large hospital systems have left markets this way. "They'll say, 'Here are the keys.' Then, the buyers will decide what to do with it."
The analysts noted that changing needs in the region will also influence what happens to St. Joseph. For example, in the 1980s hospitals began providing more services on an outpatient basis. That's what led Liberty Medical Center in 1999 to transfer inpatient services to its sister hospital, Bon Secours, three miles away.
Other hospitals have bought facilities and improved them, including Johns Hopkins Medicine, which acquired distressed Baltimore City Hospital in 1984 and turned it into Johns Hopkins Bayview Medical Center. More recently it acquired Howard County General Hospital, a deal that allowed the community hospital to expand services and Johns Hopkins to gain suburban patients.
But Baltimore-area hospitals already have a lot of capacity, perhaps too much, according to some observers. An official assessment this year by the Maryland Health Care Commission shows Central Maryland had the most excess in the state, with physical capacity for 583 more impatient beds than those now licensed.
St. Joseph makes up about a quarter of Baltimore County's 1,112 beds, but there are more than 4,000 in the city.
Still, potential buyers could see advantages in St. Joseph. U.S. News and World Report ranked seven specialties as high-performing and ranked the hospital 11th overall in the Baltimore area.
The suitors include the University of Maryland Medical System, MedStar Health, Greater Baltimore Medical Center, LifeBridge Health and St. Agnes Hospital, according the hospitals and others with knowledge of the negotiations.
Robert A. Chrencik, president and chief executive of the University of Maryland Medical System's 12-hospital system, said the St. Joseph's financial situation was troubling but his system has the "medical horsepower" to turn it around. And Greater Baltimore Medical Center's president, John B. Chessare, wrote in a blog post that his hospital and St. Joseph already work well together.