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Joining for wellness Merger: Liberty Medical Center and Bon Secours Hospital have disparate histories but are merging to secure their places in a changing medical marketplace.

THE BALTIMORE SUN

One began in the last century with the desire to have a hospital in Baltimore that would treat black patients and would train and hire black medical staff. The other began in the last century with a small order of French nuns invited to Baltimore by the archbishop to treat people in their homes.

Despite their disparate histories, Liberty Medical Center and Bon Secours Hospital have been brought together by some thoroughly modern, and some 21st century, considerations.

The two urban hospitals are seeking to secure their place in a changing medical marketplace, combining to make themselves into the kind of full-service, cost-efficient institutions that appeal to managed care insurers. Liberty's merger into the Bon Secours Baltimore Health System is expected to close in a few weeks.

Their efforts are given a sense of urgency as the government programs that insure most of their patients are shifting rapidly into HMOs and similar managed care plans.

Medicare and Medicaid have lagged behind commercial plans in shifting from patient-choice, fee-for-service insurance to managed care, in which the health plan exercises more control over what care patients receive and where they receive it. But both are catching up rapidly -- Maryland plans to move all its Medicaid recipients into managed care plans within six months next year -- and Bon Secours and Liberty must move nimbly to adjust.

They've adjusted in the past; each has reinvented itself several times.

Liberty is a successor to Provident, the city's traditionally black hospital that began in a rowhouse in 1894. In financial trouble, Provident was essentially taken over in 1986 by Lutheran Hospital in a merger that formed Liberty. Since Provident had a relatively new building (its facility on Liberty Heights Avenue opened in 1970) and Lutheran an old one, the operations were consolidated on the Provident campus.

The sisters of Bon Secours (French for "good help") were invited to Baltimore in 1881 by Cardinal James Gibbons. The sisters opened a hospital in West Baltimore -- the original building, on Fayette Street, is still in use -- in 1919.

The order opened hospitals in other cities, and created an overall management structure, Bon Secours Health System, in 1983, based at the provincial house and retreat center for the Congregation of Bon Secours order in Marriottsville.

Just six hospitals as recently as 1993, the Bon Secours system is now, in effect, a billion-dollar health corporation.

Three other hospitals -- two in Virginia, one in Pennsylvania -- joined the system Thursday, and Liberty will bring the total to 15.

The system, which includes nursing homes, home health care and other services, will have about 17,000 employees.

Changing industry

Mergers, consolidations and growth have become a daily diet in the health industry. Maryland alone has seen five hospitals merge into the Helix system, Johns Hopkins take over what is now Johns Hopkins Bayview, two Seventh Day Adventist hospitals in the Washington suburbs form a system, and two hospitals on the Eastern Shore merge earlier this year. Two hospitals in Cumberland are completing a merger now.

"Clearly, inpatient volume has been going down," as more patients are treated outside of hospitals and hospital stays are shortened, says David S. Salkever, professor of health policy and management at the Johns Hopkins School of Public Health. "Hospitals are under a lot of pressure to reduce unit costs to cope with the drop in volume." One way to do that, Salkever continues, is to spread administrative overhead.

Lower occupancy

The drop in inpatient volume has been dramatic at both hospitals: Occupancy at Bon Secours has dropped from 71.6 percent for the year ended June 30, 1991, to 59.1 percent (around the state average) five years later. Liberty has fallen from 75.9 percent to 43.8 percent over the same period.

While both operate in the black, their margins are small by state and national standards.

And Liberty has been identified for several years by the state's hospital rate-setters as a high-cost hospital, preventing it from taking full inflation adjustments to its rates until its costs come closer to the state average.

Liberty announced a staff restructuring last week designed to trim costs and affecting about 130 of its 1,070 employees. Liberty officials said the cutbacks were unrelated to the merger and were in response to Liberty's own reduced inpatient usage.

Mergers can reduce overhead somewhat, but Carl Schramm, president of Greenspring Advisors, a firm serving investors in health and managed care, says research shows that "efficiency can't begin below 350 beds."

Both Bon Secours and Liberty have between 200 and 300 beds. To achieve significant cost savings, Schramm says, the hospitals might find they have to close one of their campuses, or at least consolidate certain services in one facility.

Combining operations

So far, the hospitals have indicated they will begin seeking savings by looking at combining "back shop" operations such as billing. "We're moving fairly quickly to integrate in areas such as finance -- there are a lot of things we just don't need two of," says Everard O. Rutledge, Liberty's chief executive, who will become CEO of Bon Secours Baltimore Health System. He said he hopes staff reductions in those areas can be accomplished by attrition, but "we haven't done a complete analysis" of staffing needs.

As for consolidation of medical services, he says, "that's a process that will be on the table. The medical staff has to work it through. This has to be done with great sensitivity."

Liberty has been seeking a "partner" for about three years, Rutledge says, since its board updated its strategic plan because "it was quite apparent there were changes in the marketplace." He said Liberty officials had conversations with most other hospitals in the city before deciding on the Bon Secours deal.

The Bon Secours system has been growing nationally, particularly by acquiring several hospitals in one market, although usually other Catholic hospitals.

In Baltimore, Bon Secours and Liberty fit because each has some services the other does not. Liberty has large inpatient and outpatient psychiatric programs. Bon Secours has a subacute unit for skilled nursing care, a home health agency, a hospice program and the largest kidney dialysis unit in the state.

Complementary programs "make them more attractive to managed care and to each other," says L. David Taylor, former CEO of Preferred Health Network, a Baltimore managed care plan, and now a health consultant. "It improves efficiency; the referral patterns are more smooth."

And managed-care insurers, Salkever says, prefer dealing with a larger entity that can provide a fuller range of services. Or as Jonathan Weiner, Salkever's colleague at the Hopkins School of Public Health, puts it -- rather than deal with many health providers, "managed care organizations like dealing with a single medical director and a single lawyer."

Common mission

But while complementary programs attract, both parties say they found the merger appealing because the two institutions share a feeling of urban mission. While several other hospitals have left West Baltimore, both Liberty and Bon Secours decided to stay.

Both institutions have a strong orientation not just toward treating the sick but toward trying to keep people healthy.

Rutledge comes from a public health background -- he previously headed the St. Louis health department -- and developed the Urban Medical Institute, a gleaming outpatient facility that opened at Liberty this month, with a panoply of programs in education and prevention. The $6.5 million, 40,000-square-foot facility even includes a home-style kitchen where patients can learn to cook healthier meals.

"We have tens of thousands of walking wounded in the community who need intervention," Rutledge says.

In its immediate neighborhood, Bon Secours is developing a Community Support Center for programs such as AIDS screening and working with teen parents, and has converted two old schools to serve as senior housing.

"After 115 years of serving this community, the people are sicker than they've ever been. We're not satisfied just to repair them when they show up at the hospital. We used to think of taking care of the sick as health care. Now it's building healthy communities," says Sister Nancy Glynn, CBS, sister president of the board of directors of Bon Secours Baltimore Health System. (The board also has a lay chairman, William J. Gorman. Arnold L. Williams, who chairs Liberty's board, will be vice chairman of the board after the merger.)

Community clinics

Another thing the two hospitals have in common is a network of community clinics -- ten between them -- with primary care physicians. Those are important in attracting patients and managed care contracts. Bon Secours also has satellite kidney dialysis centers, and Liberty has mental health clinics.

Will Bon Secours Baltimore Health System continue to grow, perhaps adding other local hospitals?

"We'd like that to be the case," says Jane Durney Crowley, who has been CEO of Bon Secours Baltimore and will be Rutledge's deputy in the merged organization. "We've made several efforts to build or buy or partner long-term care." But while other city hospitals have reached out to capture suburban patients, with outpatient facilities in the counties, Rutledge says, "I don't see us doing that. There's so much work to be done here."

A look at Liberty, Bon Secours

J... .... .... .... .... ....Bon Secours .... .... .... Liberty

Employees ... ... . .... .... .... 1,024 ... ... ... ... 1,070*

Licensed beds .... .... .... ... ... 208 ... ... ..... ... 282

Admissions ... ... ... ... ... ... 5,972 ... ... ... ... 6,517

Occupancy rate ... ... ... ... .... 59.1% ... ... ... ... 43.8%

Operating revenue .... ... $50.8 million ... ... $62.0 million

Net profit .... .... .... .. $1.3 million ... ... ... $538,100

Percent of revenue from:... ... ... ... ... ... ... ... ... ..

Medicare ... ... ... ... .... ... 58.5% ... ... ... .. 38.4%

Medicaid ... ... ... ... .... ... 15.2% ... ... ... .. 21.4%

Uncompensated care ... ...... ... 10.7% ... ... ... .. 14.3%

* Liberty staff levels before restructuring announced last week.

Source: Bon Secours Baltimore Health Corporation; Liberty Health System; Health Services Cost Review Commission. Financial data based on year ending June 30, 1995, except admissions, which is for calendar year 1995.

Pub Date: 11/03/96

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