MedStar Health, the Columbia-based nonprofit that is already the largest hospital group in the area, said yesterday that it will take over financially troubled Georgetown University Hospital in Washington.
Under an agreement with Georgetown University, MedStar will pay $80 million -- roughly the amount of the hospital's debt -- and as much as $70 million more if it meets future earnings targets.
With Georgetown, MedStar will have 2,900 beds, annual revenue of $1.85 billion and 22,100 employees.
Created two years ago, MedStar operates four hospitals in the Baltimore area -- Franklin Square, Good Samaritan, Harbor and Union Memorial -- and two in the District of Columbia -- National Rehabilitation Hospital and Washington Hospital Center, the largest in the district. MedStar shut Church Hospital in East Baltimore last year, but plans no further hospital closings, said John McDaniel, MedStar's chief executive officer.
MedStar and Georgetown announced a "letter of commitment" 11 months ago. McDaniel said the deal took so long to complete because they went beyond due diligence to "plan how we will link the clinical enterprises."
While MedStar will run the hospital and related clinical programs, the university will continue to operate the medical school. Faculty physicians will have contracts with Georgetown for teaching and research, and with MedStar for clinical care.
The deal will have little immediate impact on Baltimore patients, McDaniel said, but the hospital's affiliation with Georgetown's medical school "will affect the quality of programs in Baltimore over time," by offering more training and research opportunities.
The deal also helps MedStar, McDaniel continued, by bringing it more patients from Northern Virginia and Montgomery County.
He said his chain could reverse Georgetown's fortunes through economies of scale, such as volume purchasing, and by its "ability to increase revenue through development and build-out of clinical programs and effective managed care contracting."
Georgetown has been seeking a partner for several years to stanch losses from the medical center. The center, which includes the medical and nursing schools as well as the hospital, lost $83.7 million for the fiscal year that ended June 30. The Rev. Leo J. O'Donovan, S.J., president of the university, said, "The agreement meets Georgetown's three essential requirements in that it preserves our academic quality, supports our Catholic and Jesuit identity, and makes sound financial sense."
Dr. Paul Griner, director of the Center for the Assessment and Management of Change in Academic Medicine, part of the Association of American Medical Colleges in Washington, said at Georgetown, "the clinical enterprise was becoming a financial drain on the university, and there was not sufficient capital to turn things around, to expand the business coming into the center."
Baltimore's academic medical centers, Johns Hopkins and the University of Maryland, have been able to reach out for more patients by affiliating with community hospitals that refer patients for specialty care, by opening suburban outpatient centers and by offering primary care clinics.
But Georgetown and George Washington, another academic hospital in the District, lacked the capital to take such steps, Griner said. George Washington sold an 80 percent stake in its hospital to a for-profit chain, Universal Health Services, in 1997.
Griner said he knew of "less than 10" examples nationally of academic hospitals being taken over by chains of community hospitals, but "I don't know of any university hospital that's been purchased that hasn't shown a movement toward stability." He said the acquiring community hospitals also found that the academic hospital "gives the hospital system a kind of patina of excellence," and had generally helped the acquiring chains.