St. Joseph hospital seeks strategic partnership

St. Joseph Medical Center is looking to partner with other hospitals as it continues to lose patients and revenue in the wake of problems with its lead cardiologist — a move that experts say might even lead to a merger.

The Towson hospital has asked area hospitals to present options for forming a "strategic partnership" that its executives hope would improve the quality of care and services to patients.

St. Joseph executives, who insist the hospital is not for sale, said they were prompted to enter talks with other hospitals by changes in the health care industry. Hospitals have been merging rapidly and looking for ways to operate more efficiently as they face competitors such as urgent-care centers and declines in reimbursements from Medicare and Medicaid — both trends that cut into profits.

Its closest hospital neighbor, Greater Baltimore Medical Center, wouldn't confirm whether it was in talks with St. Joseph, but said "one strong system of care inTowson" would be a good idea.

St. Joseph's search for a new direction comes amid continued troubles that began in 2009 when Towson cardiologist Mark G. Midei was accused of placing unnecessary stents in hundreds of patients.

Midei has since stopped working at the hospital and is no longer licensed to practice medicine in Maryland.

But the controversy has cost St. Joseph heavily, including $22 million it paid the federal government to settle separate allegations of a kickback scheme involving a cardiology practice where Midei once worked and to repay Medicare funds received for stents he implanted. The hospital still faces lawsuits from hundreds of patients and from Midei, who contends that St. Joseph used him as a scapegoat.

Financial declines in the day-to-day business of the hospital also persist.

St. Joseph's patient net revenue fell from $361 million in fiscal 2009 to $299 million in fiscal 2011, which ended June 30, according to the Maryland Health Services Cost Review Commission, which sets hospital rates in the state. (Fiscal year 2011 numbers are unaudited.) Patient admissions, meanwhile, dropped from 35,486 in 2009 to 26,942 in 2011.

The hospital asked the cost review commission for financial help earlier this year, and the agency credited $5.5. million for administration, information technology and other costs. The hospital also told the state health officials it was losing doctors, but the state doesn't track physician numbers.

All of the state's hospitals are facing patient declines because of the economy, said Jerry Schmith, the commission's deputy director of hospital rate-setting. But it was unusual for St. Joseph to ask for financial help, he said.

"They were losing money and wanted to talk to us about helping them get through the period," Schmith said.

St. Joseph executives wouldn't give details about what they were looking for in a partner, saying they were leaving the door open to all possibilities.

Hospital spokeswoman Vivienne Stearns-Elliott said that the hospital is not for sale, but executives would have to look at whatever proposals they receive to know what would happen to the facility.

It is unclear whether the hospital would maintain a relationship with its current owner, Colorado-based Catholic Health Initiatives. St. Joseph also has an affiliation with the nursing school at nearby Towson University, which could also be affected.

St. Joseph would not make Charles W. Neumann, the CEO and hospital turnaround specialist brought in to head the troubled hospital this summer, available for an interview.

"Health care in America is changing," Neumann said in a statement. "Nowhere is that more evident than in the health care community with an increased number of provider alternatives, a range of physician employment initiatives, and declining state and federal reimbursement. The [request for proposals] is an innovative approach to managing our future by focusing on strengthening quality, enhancing services, and providing cost effective care."

Mike Paul, a New York-based crisis management expert, said St. Joseph may create more uncertainty by giving so few details about what it would like from a relationship with another hospital.

"Lack of information only increases doubt," Paul said. "That doesn't mean they have to know all the pieces of the pie. But whatever they know, they should release it."

A strategic partnership could take many forms, with a merger being the most drastic, health care experts said.

"A merger would be a fairly drastic measure, unless there were other problems," said Glenn Melnick, a health economist with RAND Corp.

The right partnership could help the hospital cut costs and build up its physician numbers, analysts said.

Russell Richmond, CEO of consulting firm Objective Health, said, "It does not need to be a full-out merger. Hospitals have a broad range of opportunities and it can be across different players in the market. You can talk about partnership opportunities with local health plans … and with other hospitals. There is a broad spectrum of opportunities that these institutions have to shape themselves."

St. Joseph would not reveal how many hospitals received the requests. Area hospitals contacted by The Baltimore Sun, including Mercy Medical Center, Medstar Health, Lifebridge Health, University of Maryland Medical System and Johns Hopkins, either declined to discuss whether they had received a request or didn't return phone calls.

GBMC released a statement that said: "Whatever the outcome of the SJMC situation, many believe that the result that would make the most sense is for there to be one strong system of care in Towson that is focused on better health, better care, and more joy for those providing the care at lower cost. One strong local system increases the ability to maintain access to existing services with the possibility of adding additional services as they are needed."

The weak economy and uncertainty over health care reform have driven a slew of hospital mergers in recent months. Many larger hospitals have been gobbling up smaller rivals concerned about their survival as the health industry transforms itself. There were 72 mergers across the country last year, and the same number in the first nine months of this year, according to Irving Levin Associates.

Hospitals have also looked at other ways of generating revenue, including hiring doctors directly. In Maryland, hospital rates are set by the state, limiting revenue streams, so some Baltimore hospitals have opened satellite physician offices. Mercy recently opened an office in Lutherville and Hopkins has one at Green Spring Station.

St. Joseph said it's following the trend despite its recent stent troubles.

"We feel it's going to chart our future," said Stearns-Elliott. "It allows us to better serve our community. It's for the best interest of our community and our patients to try to pursue a strategic relationship."


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