Johns Hopkins Medicine said Tuesday that it plans to acquire a Florida children's hospital in a deal that industry experts said would bolster the prestigious Baltimore health system's visibility in the highly specialized pediatric field.
The deal with All Children's Hospital & Health System of St. Petersburg, Fla., would put one of the nation's 45 standalone children's hospitals under the Hopkins banner and mark Hopkins' first acquisition outside the Baltimore- Washington region. It would also give Hopkins a new revenue source as pressure mounts on care providers to help contain rising health costs.
Hospital officials said they would combine resources to apply for medical research funding and build on each institution's strengths. For Hopkins, the integration is expected to further enhance a well-established pediatric branch.
"We see this as a way to expand our research capability in new areas and new spaces," said Edward Miller, dean and CEO of Johns Hopkins Medicine.
The deal between the two hospitals is a non-cash transaction that's expected to close by the end of the year.
These were the latest round of merger talks for Hopkins, which closed a deal with Suburban Hospital in Bethesda last year. It is also exploring a merger with Sibley Memorial Hospital in Washington.
While the All Children's Hospital deal was an unusual move for Hopkins, industry experts said it made sense for the system to include an institution solely dedicated to pediatric medicine.
"There are very few children's hospitals in the United States," said Joshua Nezmoff, a hospital mergers and acquisitions consultant based in New Hope, Pa. "This may not be a new product line for Hopkins, but it's a more discernable brand for Hopkins because it has the children's hospital name. Hopkins provides a lot of children's services but is not as branded."
All Children's will join Hopkins' other hospital affiliates: Johns Hopkins Hospital and Johns Hopkins Bayview Medical Center in Baltimore, Howard County General Hospital in Columbia and Suburban Hospital.
A recent resurgence in hospital mergers followed a lull while federal health care reform was being hammered out in Congress, said Sanford B. Steever, editor of The Health Care M&A Monthly, a publication of Irving Levin Associates, which tracks hospital data. The federal legislation passed in March.
The recession has also driven some mergers as some hospitals struggled financially and banded together to weather the downturn.
More than 50 hospital mergers happened in 2009, down from 60 in 2008, according to Irvin Levin Associates. About 25 mergers have been announced so far this year.
Hopkins executives said the All Children's acquisition doesn't signal an aggressive or out-of-state expansion strategy for the medical system. Rather, they said, they were approached by executives from All Children's three years ago.
"This was really a desire by All Children's Hospital to become one of the top pediatric hospitals in the country," Miller said. "An opportunity came along that fit into our strategic plan. We weren't out there looking for opportunities."
But Nezmoff, the consultant, said the Florida move allows Hopkins to enter a new market.
"They are widely recognized for being one of the finest institutions in the world, and the brand name is fantastic," Nezmoff said. "They are simply taking that brand name into other markets."
The merger combines Hopkins' expertise in academic research with the 84-year-old Florida medical institution's strong clinical background, hospital officials said in announcing the deal.
"We wanted to improve our capabilities in pediatric research and deliver education to physician residents and fellows," said Gary Carnes, All Children's president and CEO. "Hopkins' reputation in that area goes without question."
Hopkins could develop new research programs with All Children's, Miller said. Hopkins officials also envision using the Florida hospital's successful residency program to devise new ways to train doctors in pediatrics, Miller said.
Miller described the Florida hospital as a financially sound, forward-looking institution. All Children's recently opened a new $400 million facility with 259 beds and its own power plant.
The merger would also provide another revenue stream for Hopkins, Miller said. Because the state sets hospital rates in Maryland, Miller said, the profit margins at its children's division "are low compared to other freestanding hospitals outside the state of Maryland."
"Children's hospitals in other states are better off financially and better able to build their programs," Miller said.
The agreement calls for All Children's, which serves eight west Florida counties, to keep much of its autonomy. The hospital started more than eight decades ago as a medical center for crippled children.
The day-to-day operations are expected to remain largely unchanged, and the hospital would keep its name but with a tagline noting its affiliation with Hopkins. The staff and leadership of the Florida hospital also would remain the same.
But Miller noted that Hopkins would have controlling interest and ultimately make the final decision on certain issues. When the transaction is completed, All Children's would operate under the John Hopkins Health System governance structure. Miller said the hospital would be treated like other Hopkins affiliate.
"If they wanted to do a major new project in St. Petersburg, it would come through Hopkins Medicine," Miller said. "It would be worked out at the local level and that board would have to vote for it, but then it would come to us."
Hopkins and All Children's officials emphasized that both institutions share similar missions. "I think it's synergy that can't be ignored and will be very positive for both institutions going forward, Carnes said.