The non-profit companies that operate three of Kentucky's largest hospital networks — Saint Joseph Health Systems, University of Louisville Hospital and Jewish Hospital — intend to merge under an agreement approved by U of L trustees Thursday.
The organizations have agreed to sign a letter of intent, which is a non-binding document that provides an outline as the parties work toward a final agreement. They hope to complete the merger within a year.
The combined entity would include more than 3,000 physicians and 15,000 employees in Kentucky and have combined revenues of more than $2 billion. Jewish and U of L hold a 42 percent market share in the Louisville area while Saint Joseph Hospital and Saint Joseph East have a 21.8 percent market share in Lexington.
"Through the creation of this integrated, comprehensive network, there will not be a health care need we cannot meet," said Gene Woods, chief executive of Saint Joseph Health System.
The merger includes Denver-based Catholic Health Initiatives, which operates Saint Joseph Health Systems in Kentucky, the University of Louisville Hospital/James Graham Brown Cancer Center, and Jewish Hospital & St. Mary's HealthCare/Jewish Hospital HealthCare Services in Louisville.
It was not immediately known what the combined company would be called or where it would be headquartered. Regulatory approval for the merger will be sought from various licensing authorities as well as from the Federal Trade Commission.
The merger will consolidate three not-for-profit 501(c)(3) organizations, as the University of Louisville's hospital operation is a non-profit that is separate from the university. U of L President James Ramsey is the chairman of the hospital board.
When complete, the merged entity will be within the geographic reach of two out of every three Kentuckians, said Paul Edgett, senior vice president of Denver-based Catholic Health Initiatives.
The health care companies said the merger would include a cash investment by Catholic Health Initiatives exceeding $300 million, expand the academic medical center in Louisville and extend the research and teaching programs of the University of Louisville statewide.
Edgett said the $300 million investment would be on top of each organization "contributing the assets of their organization." It would be spent on additional, but as yet undetermined, infrastructure needs, he said: "We are continuing to do our business planning right now."
The Jewish Hospital system reported losing $17.8 million during 2009 and the first three months of 2010.
The merger is part of a broader national trend as hospitals combine in an effort to deal with health care legislation, gain leverage with insurance companies and expand their ability to treat complicated diseases.
"Things are moving quickly in health care and they're attempting to stay on top of that," said Dave Adkisson, CEO of the Kentucky Chamber of Commerce.
Adkisson said the merger will be successful if it can reduce costs while providing patients with a broader range of high-quality care.
"Regardless of the future of the federal health care law, I think the handwriting is on the wall that providers will be held accountable for coordinated care, and they will be financially rewarded for coordinating care," he said. "This is their effort to try to keep up with a changing reality."
On Monday, University of Kentucky HealthCare said it will partner with Louisville's Norton Healthcare to build a broader range of services — especially in the areas of cancer, heart disease, stroke, organ transplants, diabetes and medical training — across the state. But that agreement was not a merger and involved no financial exchanges, said UK spokeswoman Kristi Lopez.
UK Chandler Hospital and its health care system are part of UK and governed by the UK board of trustees, so a merger involving the hospital would not be possible under the current governance structure.
Dr. Michael Karpf, executive vice president for health affairs at UK, said consolidations are inevitable as providers try to position themselves to serve more patients at a manageable cost.
Karpf said the Saint Joseph merger is "very analogous to discussions that we are having with Norton," and that UK already has non-binding relationships with health care providers across the state such as Appalachian Regional Hospitals and the Saint Claire Medical Center in Morehead.
"I'm very excited for them and think it is a good thing," Karpf said about the Saint Joseph merger.
Central Baptist president and CEO Bill Sisson said he could not understand the benefit of such a merger to patients or for the training of future physicians.
"I think you've got a battle between two university-funded hospital systems in Kentucky," Sisson said, adding that UK and U of L should instead concentrate on taking care of patients and training physicians.
Still, he said, Central Baptist's hospital admission and outpatient numbers are robust: "This does not affect us at all. We're going to do fine. But I keep coming back to the question, what is this all about?"
Woods of Saint Joseph said the merger is not about dominating the Kentucky market.
"We have a long-standing tradition of serving those in need. It's really about expanding access throughout Kentucky," Woods said. "... This allows us to reach parts of the state that we have not reached before."