Verdugo Hills Hospital in Merger Discussions

Verdugo Hills Hospital and the Keck Medical Center of the University of Southern California recently confirmed that they have kicked off discussions of a “merger,” though officials from both hospitals are mum on details of the talks. The health care organizations this month issued identical statements to the San Fernando Valley Business Journal, stating that the board of directors of the 158-bed Glendale hospital voted at its June meeting to “initiate merger discussions” with the University of Southern California’s medical center. “This could possibly lead to an affiliation with the Keck Medical Center of USC by the end of 2012,” said hospital spokeswoman Celine Petrossian, in the statement. A merger would give Verdugo Hills Hospital (VHH), an independent community hospital, a partner to help it respond to a tough reimbursement climate, which is expected to tighten under health care reform. USC, meanwhile, would benefit from a foothold in an area outside East Los Angeles. However, many questions remain and it’s unclear how the future entity would be structured and whether there would be major changes to hospital operations. VHH has been courting several suitors, including the 457-bed Glendale Adventist Medical Center (GMAC), since March. On March 22, VHH released a statement that it was exploring strategic opportunities to improve its ability to meet the challenges of health care reform and “preserve our future relevancy to the residents of the foothill communities we serve.” At the time, the hospital said it had been approached by other hospitals and large medical groups in the community to discuss possible affiliations or merger. Petrossian said the hospital is not in talks with other health care organizations about a merger, partnership or other such affiliation. She declined to comment further, and said other hospital representatives were unavailable to be interviewed. Leslie Ridgeway, director of media relations for USC Health Sciences Public Relations and Marketing, declined to comment on the potential deal beyond the provided statement. Hospital systems everywhere are looking to grow or align with others to be more attractive partners to health plans and others as health care reform encourages the creation of accountable care organizations and other forms of shared savings. According to Jan Emerson-Shea, spokeswoman for the California Hospital Association, the Affordable Care Act could cost California hospitals $17 billion in Medicare and Medicaid reimbursements over 10 years. With the two federal programs accounting for 20 to 40 percent of revenues at most hospitals, the cuts will hurt many smaller institutions that lack larger partners. “Even if they are doing all right now, more are going to find it hard to operate,” she said. Small, independent hospitals, may find it especially difficult to keep up with the new health care reform mandates. They’re among the most active health care organizations in pursuing potential mergers and partnerships, Emerson-Shea said. VHH, which opened its doors in 1972, has more than 400 physicians and provides care in more than 50 specialties. The hospital draws more than 49,000 outpatient visits and more than 7,200 inpatient visits annually. VHH was 55 percent occupied in 2010, based on the latest figures available from the Office of Statewide Health Planning and Development. It had net patient revenues of $82.9 million in 2010 and a net income of $2.2 million. The hospital listed $527,428 in charity care. The Keck Medical Center of USC, including both Keck Hospital of USC and USC Norris Cancer Hospital, operates a total of 211 beds. In fiscal year 2010-2011, the group had more than 169,000 outpatient visits and more than 10,000 inpatient visits. The center is aligned with 500 physicians, including many who are affiliated with VHH, and covers more than 70 specialty areas. USC also operates satellite offices in Downtown Los Angeles, La Canada, Beverly Hills and it recently opened a Pasadena multi-disciplinary center. VHH had been evaluating its strategic partnerships options for many months before its decision last month to forge ahead in formal talks with USC. During that time, Glendale Adventist Medical Center, made its desire to merge with VHH widely public in a handful of newspaper advertisements and a letter to its employees and the Glendale community. Recent news of VHH’s decision to initiate merger discussions with USC prompted the hospital to issue a written statement. “We are very disappointed in this decision,” said Kevin Roberts, president and CEO of GAMC, in a July 18 statement. “We have deep knowledge of local health care needs and a long history providing high-quality health care to the residents of Glendale and the Foothill communities, and we feel that an affiliation with GAMC would have helped to defragment care in the area.” Many of Glendale’s 700 physicians use the Verdugo campus. Roberts said, “While this is not the outcome we would have desired, GAMC will continue its long history of community collaboration, which has always included VHH and will now include its new partner.”