SVMH mulls merger with Natividad after all other suitors back away.
Thursday, July 5, 2012
While CNN editors were scrambling to rewrite their June 28 headlines on the Supreme Court’s decision to uphold the Affordable Care Act, Natividad Medical Center CEO Harry Weis was crunching numbers.
Only 17 percent of Natividad’s patients today have private insurance coverage, a number Weis expects could grow to 25 percent as more employers offer health insurance or the uninsured buy plans from a state-offered exchange under Obamacare. Even if that guess is high, Weis calculates good things for Natividad’s bottom line: “We’re getting pennies on the dollar today [for uninsured patients], so anything will only be better,” he says.
As a public safety-net hospital accustomed to treating patients without coverage – 66 percent of Natividad’s clients are uninsured or on Medi-Cal, the state’s health coverage for low-income residents – Natividad is poised to see increases in insurance-company reimbursements, according to Weis.
“We’re in a better position to deal with the ramifications than most community hospitals,” he says. “It’s very different math for us.”
Other hospitals are likely to face lower reimbursement rates than they do today. Insurance companies are already paying fewer pennies on the dollar, and some employers are expected to pay penalties rather than offer coverage. That dumps currently insured patients into the exchange, which will provide lower reimbursement to health care providers.
Salinas Valley Memorial Healthcare anticipates a steep drop in private and employer-provided coverage, down from 36 percent today. Less than 4 percent of their patients are currently uninsured.
SVMH has been looking for a merger or a sale to help as the reimbursement bubble deflates. But all but one prospective partner – Natividad – dropped out of the running before a July 2 deadline to submit proposals. The SVMH board will consider whether to merge with Natividad merger or remaining stand alone at its July 26 meeting; if they approve a merger, it still needs to pass muster with voters.
Hospital Corporation of America dropped its bid to buy SVMH on June 26. HCA representatives did not return the Weekly’s calls, but Jim Maloney, managing partner at Cain Brothers, SVMH’s consultant on the merger, says it’s not a reflection on the quality of care. “I think it does reflect that the hospital has some challenges,” he adds.
SVMH hired Cain Brothers after McKinsey & Co. recommended a number of cost-savings strategies in May 2011. The Weekly obtained a copy of the confidential McKinsey report, which maps out strategies for making operations leaner.
The section on a merger names potential partners, including Community Hospital of the Monterey Peninsula and HCA.
“There is a range of partnership options that SVMH can consider to strengthen performance, four of which are high potential,” the report states. It recommends an acquisition by Sutter Health, Catholic Healthcare West or HCA. Nowhere does the 130-page, $950,000 report mention Natividad.
Dr. James Gilbert, an OB-GYN who served a term as chief of staff at SVMH through 2008 and is also board president Jim Gattis’ son-in-law, says it’s a disappointment HCA dropped out.
“There’s not much question in my mind we wanted that [merger] to happen,” he says. “The reason they pursued [HCA] was they thought it was worthwhile. It would’ve been a good thing for the hospital.”