In separate votes on Wednesday, Rochester General Health and Unity Health systems’ boards voted to approve a definitive merger agreement.
The approvals—unanimously and enthusiastically made by both systems’ governing bodies—seal a deal the systems started negotiating in April but still leave months’ of work to be done before an actual merger takes place, said RGHS CEO Mark Clement.
Also needed are regulatory approvals before the merger can be finalized: sign offs by the New York Attorney General and Health Department and the Federal Trade Commission.
Clement and Unity CEO Warren Hern expect that process to complete with relative speed. . They have briefed state officials in Albany on the planned merger and believe it is on track to be green lighted by the Attorney General and the Department of Health.
FTC approval is needed to certify that a joining of RGHS and Unity, the region’s third largest and fifth largest employers respectively, would not stifle competition or violate federal antitrust provisions. RGHS has 8,100 staffers and Unity has 5,300.
The CEOs had previously seen the FTC’s vetting process as likely to take a year or longer, projecting that the merger’s finalization would not take place before 2015.
The antitrust law firm the systems hired now sees the process as moving more quickly with the FTC expected to give the merger its blessing by June 30, 2014, Hern said. Few steps to tangibly combine the systems’ operations can be taken until then without running afoul of antitrust laws, he added.
The exact shape of the organization that would emerge after the last approval is granted is not yet known and somewhat cloudy even to them, the CEOs said.
Terms agreed on by the systems’ boards today call for creation of unified organization with a new governing board that would be neither RGHS nor Unity, Clement said.
What that organization would be called, what its leadership structure would be and how its resources would be deployed would only become clear as Unity and RGHS evaluate and plan the merger in coming months, Hern said.
RGHS currently includes two hospitals—Rochester General and Newark-Wayne Community in Wayne County. It announced last week that it plans within the next three-to-six months to also fold a Clifton Springs Hospital & Clinic in Ontario County, into its organization. It is also developing an ambulatory care campus including an outpatient surgery center at the Linden Oaks Medical Center.
Unity runs the recently renovated and expanded Unity Hospital in Greece and St. Mary’s Campus, which includes a long-term care facility, outpatient clinic and other facilities in downtown Rochester.
Both health systems also run nursing homes and medical practices, employing scores of doctors as well as other facilities.
Exactly how to fit those parts together to create a new organization would take months of evaluation and planning, the CEOs said.
Today’s vote marks the second time Unity and RGHS planned a merger. They first planned to join some eight years ago. But the deal went off the track after RGHS’ board unexpectedly and for reasons never fully explained voted at the last minute to kill the deal.
Since then, Clement said, much has changed: Both systems have different leaders. And third-party and government payers have steadily cut hospital reimbursement rates. Payers are also introducing quality measures as a new standard to determine how providers are paid. Procedures that used to require hospitalization have moved to ambulatory settings. And the effect of the Affordable Care Act’s still unfolding insurance reforms have yet to become fully evident.
In that rapidly changing health care environment, size increasingly matters.
“It’s a question of scale,” Hern said.
“The Cleveland Clinic, which is probably five times our size announced last week that it plans to trim $300 million from its organization,” Clement said by way of illustrating Hern’s point.
Like most corporate mergers, would a merged Unity and RGHS seek similar efficiencies, eliminate duplicate programs and in the process trim staff?
Not if the systems’ marriage goes as they hope, Clement said.
“I want to stress that we’re both doing this from a position of strength and with the support of the community and businesses,” he said. “It’s not something we’re doing out of desperation. We think this will be something that will preserve what we have.”
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