The Visiting Nurse Association of Baltimore, a nonprofit charity that has served poor, sick people at home for more than 100 years, is engaged in talks with a group of hospitals to sell or merge its service.

Lynne C. Sennett, president and chief executive officer of the VNA, said the home nursing association is considering the move to bring in new sources of capital, lower its costs and ensure its long-term survival.

She said the VNA expects to complete a transaction by Dec. 31. A third option under consideration is becoming part of a for-profit network of health care providers.

The VNA served 6,000 patients last year and had revenues of about $18 million. It is by far the largest home health care provider in Maryland, and its acquisition could be a major coup for any company trying to build a network of birth-to-death health services to sell to managed-care companies.

The potential sale of the VNA appears to be part of a larger discussion by a group of hospitals to set up one or more networks to deliver care in the region. All parties have signed a nondisclosure statement while talks continue, and several hospitals contacted declined comment. At one time or another in the past year, however, the group is believed to have included the Greater Baltimore Medical Center, St. Agnes Hospital and Sinai Medical Center. Hospitals in outlying counties where the VNA has offices also could be involved.

"We've been the catalyst for getting together," Ms. Sennett said.

She said a group including the heads of at least five hospitals and other providers that could offer nursing care and medical equipment has met formally twice a month for the past three months.

Discussions began a year ago after the VNA drew up a strategic plan that concluded that it needed to align with other providers to survive and Ms. Sennett began approaching hospitals. The Clinton administration's proposed health care reforms make it more likely that use of home health care would increase and companies that deliver it would have to be part of a larger network that offers a range of care for a pre-set fee, she said.

"For us it is a pro-active step," Ms. Sennett said. "We can't do it alone."

She said the company could reduce its costs by merging with its competitors and reducing costs. In addition to caring for overflow patients from hospitals, the VNA takes patients that others can't or won't accept because they lack insurance.

For the year ended June 30, however, it was $70,000 in the red, largely because of a drop in fund-raising to cover care for the 3 to 5 percent of its patients who are uninsured. Most of its patients today are covered by federal and state health insurance programs.

Also this summer, the VNA received a poor report from state licensing officials, who faulted the organization for flaws in basic services including proper assessment of patient need. It responded with a plan for change.

Nearly all hospitals today have home health divisions, but with revenues of $1 million to $3 million, they pale in comparison to the VNA. And increasingly, hospitals are realizing that revenue growth is not going to come from in-patient services.

From the hospital point of view, a merger or alliance with a large home health service would allow services and volume to grow and costs to drop. That, in turn, would make the service more attractive to insurance companies. Currently, hospitals tend to charge more for the service than the VNA or independent companies that don't have the same overhead.

Among the key questions to be resolved are who would be in charge of the VNA and the new network, and how would services be delivered. Would hospitals fold their own home health divisions and send patients to the VNA? Or would the VNA be folded into the administration of one or more of the hospitals?

Among the legal questions is what would happen to the money from the sale of a nonprofit built up over the years with private contributions and government insurance, and who would be in charge of investing this money in the future. Ms. Sennett said the directors of the new system would probably be able to manage or spend it.

The VNA is a nonstock corporation governed by a board of directors. In addition to a foundation, the VNA and a hospice, all nonprofit, it has a for-profit company that arranges for private nursing and sells medical equipment. The nonprofit companies account for the bulk of its revenues.

Most of its revenues, 75 percent, come from Medicare. Another 10 percent are paid by Medicaid and 5 percent by Blue Cross and Blue Shield of Maryland. The remainder comes from grants and fund-raising.

Typically, the VNA loses money on its Medicare business because it is reimbursed according to a method that relies on costs in past years rather than actual costs.

In recent years the VNA suffered as hospitals entered the home health business. Hospitals, although often more expensive, attracted many of their own patients who might have used the VNA in the past. The VNA also lost business to private companies. Its costs are higher than for-profit home health businesses largely because it serves the poor and has costs associated with the inner city that its competitors do not. For instance, it spends $20,000 a month to provide armed guards for nurses that deliver night and evening care to patients.

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