HOSPITALS OUTLINE MERGER PLAN; PRICE FREZE AMONG GUARANTEES

Cape Girardeau's two hospital administrators are ready to negotiate a series of guarantees with the state that the hospitals' proposed merger will result in more efficient, cost-effective health care.

James Wente, administrator of Southeast Missouri Hospital, and James Sexton, president and chief executive officer of St. Francis Medical Center, say they want to enter into a consent decree with the Missouri attorney general to set up penalties if the hospitals' union results in less than a projected $44 million in net-cost savings over five years.

Wente and Sexton will begin meeting with employer groups this week to outline the merger proposal and solicit community support. A town hall meeting also will be held Sept. 22 at the Osage Community Centre in Cape Girardeau on the proposal.

Sexton said the consent decree is the crux of the merger plan.

If the merger didn't produce the projected $44 million in savings, a new foundation would be established to provide community health-care services, the hospital administrators said. The foundation would be funded with some portion of the shortfall in projected savings, they said.

The attorney general would have oversight but not control of the foundation, and the new hospital would report its progress on reaching the projected savings annually to the community.

Setting up the consent decree would be a negotiated process with the attorney general's office, Sexton said. The process has not yet begun.

If the consent decree offer is accepted, it could also make for less federal interference in the proposed merger, said Sexton.

"It sends a message to the Department of Justice that the attorney general's office is favorably disposed toward the transaction," Sexton said.

In addition to the $44 million in savings through the merger, Wente and Sexton also promised to freeze prices for consumers and third-party payers for two years and to tie any price or rate increases for the next three years to the Consumer Price Index for Health Care Services.

At least two primary-care physicians would be hired to work solely to help improve health-care access for uninsured and underinsured patients, Wente and Sexton said.

In addition, the cost savings would allow the hospital to initiate new health-care programs and expand existing services, they said.

The two hospitals currently provide substantial support for the Cross Trails Medical Center, two clinics set up to provide primary care for uninsured and underinsured adults and children, Sexton said.

A big chunk of the projected savings would come through consolidating high-cost medical services.

The two hospitals have "a fair amount of duplication" of services after years of competition, Wente said.

If the merger is approved, six "Centers for Excellence" will be divided between the two hospitals to provide advanced care in oncology, trauma, maternal and child health pediatrics, cardiac surgery and cardiology, orthopedics and joint replacement and neurology-neurosurgery.

Each hospital campus would still provide general surgical and medical services, but dividing specialized care would help cut costs, Sexton said.

Said Sexton: "You won't need as much in the system. You save money by not duplicating services. You won't need as many support supplies. You won't need as many computers."

The process wouldn't be entirely painless, Wente said. Approximately 100 jobs will be cut if the merger is approved. The two hospitals employ about 3,000 people.

Most of those cuts should be achieved through attrition, he said.

Wente and Sexton said the merger is necessary to maintain high-quality, locally controlled health-care services in the region.

Merging will make for stronger, more effective health care in the region, Wente and Sexton said.

If the merger doesn't take place, one or both hospitals could be bought by an out-of-town health-care system, which could remove local control of available health care, they say.

If the merger goes through, a new governing board will be established to oversee the merged hospital, they said. Membership would include four representatives from each existing hospital, two new community representatives with no past affiliation with either hospital, three physicians, two hospital administrators and the president of the medical staff of the new hospital, Sexton said.

There are concerns in the community that a single hospital would mean higher prices because of a lack of competition. But a locally controlled board would have no incentive to raise prices, Wente said.

The governing board would oversee operations of the two existing hospital campuses, they said.

The foundations of the two existing hospitals would remain separate, Sexton said, and the new hospital would remain a not-for-profit organization.

The forecast for health-care services without the merger is "not a pretty picture," Wente said.

"The only way these hospitals will sustain their operations is through significant price increases over the next five years. We don't think that's possible," he said. "We've got to come together or five years from now it is going to be a different health-care picture in Cape Girardeau."

The Hart-Scott-Rodino Act requires that the federal government be notified of pending mergers and that each party file a variety of financial and service-market data for review.

The Federal Trade Commission or Department of Justice will review the information and determine if a merger violates federal anti-trust laws.

The hospitals haven't yet formally notified the federal government of their merger plans. The necessary documentation should be filed in September, and Wente and Sexton say they hope the merger will be complete before the end of the year.

The urge to merge

Key parts of the merger plan between Southeast Missouri Hospital and St. Francis Medical Center:

-- Projected savings: $44 million over five years through consolidated services, capital cost savings and staff cuts. If that $44 million isn't achieved, the new hospital would set up a fund to pay for local health care programs.

-- Price freezes: The plan calls for freezing charges to consumers for two years. For the next three years, any price increases will be tied to the U.S. Bureau of Labor Consumer Price Indexes for Health Services in Cape Girardeau. In addition, the new hospital will freeze ceiling rates to managed care and other third-party payers for two years, and will tie increases to the price index for the following three years.

-- Guaranteeing cost savings: The hospitals want to negotiate a consent decree with the Missouri Attorney General to guarantee promised cost savings.

-- Jobs lost: Approximately 100 jobs will be eliminated over five years because of the merger. Administrators hope the majority of the jobs will be lost through attrition. The combined work force of the two hospitals is approximately 3,000 employees.

-- Format of merger: Maintain two existing campuses under a newly-established single board made up of representatives from both hospitals, the community and medical professionals. St. Francis would maintain its Catholic identity.

-- Governance structure: The new hospital will remain a not-for-profit entity, and the new board will be locally based.

-- Providing service: Six "Centers of Excellence" for advanced care would be divided between the two campuses, providing care in cardiac surgery and cardiology, neurology/neurosurgery, oncology, orthopedics and joint replace, maternal and child health/pediatrics and trauma. The centers will eliminate duplication of high-dollar medical services and help achieve the projected savings. Both hospitals would continue to provide general surgical and medical services.

-- Improved access: At least two primary care physicians will be hired to work full-time at the new hospital to improve health care access for uninsured or underinsured consumers.

-- Timeline: Hospital officials plan to notify the Federal Trade Commission and Department of Justice of the merger plan in September, and hope to have the process completed by the end of the year.