CLEVELAND, Ohio -- Nashville-based Community Health Systems is partnering with the Cleveland Clinic to buy up the majority of Akron General Health System in Summit County, marking the latest in a wave of hospital mergers and acquisitions that are changing the Northeast Ohio healthcare landscape.
A relationship established earlier this year between CHS and the Clinic laid the groundwork for the Akron General deal, announced today through a non-binding letter of intent. CHS will be the majority owner of Akron General if it is finalized.
The CHS-Clinic partnership, announced in March, was designed to expand the Clinic’s national reach and improve efficiency among the more than 130 hospitals that CHS operates nationwide. While the two sides announced no plans at the times for joint ventures, the idea was acknowledged as a possibility. The current deal has been in the works for several months.
CHS and Akron General announced the acquisition this evening after the hospital’s board voted its approval. While "small pieces" of the health system will remain outside the realm of the sale, to the community it will appear as though the whole of the system has changed hands, said Ann Huston, Chief Strategy Officer at the Clinic.
The Clinic and CHS did not disclose how much the two institutions paid for Akron General. Akron General would convert to a for-profit entity as part of the deal, which may be complete before the end of the year. Akron General would be an affiliate of the Cleveland Clinic, Huston said, but would still retain its name.
"The healthcare industry is turning upside down as we speak," she said "if you look around the country you see a tremendous amount of consolidation activity going on. We've served this market forever, and this is a way to extend and strengthen that relationship."
"This is a big day for Akron General," said Akron General CEO Tim Stover. "We looked at non-profits and for-profits, but we were looking for a partner that could underpin us financially and we wanted a strong clinical partner, and this relationship offers that. It's really the best of both worlds."
Stover took over as leader of the health system in 2010 after the sudden departure of Vincent McCorkle, who stepped down for health reasons.
Today’s announced acquisition comes on the heels of several similar agreements that are realigning the balance of power in the healthcare world in Northeast Ohio and reflecting a nationwide trend of hospital consolidation.
In February, the independent, Akron-based Summa Health System signed a letter of intent to partner with Catholic Health Partners, the largest health system in the state. Catholic Health Partners, which will take over a minority ownership of Summa in the deal, owns 24 hospitals in Ohio and Kentucky and claims $5.6 billion in assets. Summa is Summit County’s largest employer with more than 11,000 employees.
Northeast Ohio Hospitals on the merge
In late June and early July, University Hospitals announced plans to merge with Elyria’s EMH Healthcare and Parma Community General Hospital in separate agreements. The hospital system hopes to complete negotiations with the two independent hospital systems by the end of the year.
Nationwide, hospitals are merging faster and more frequently than they have in years. Last year was one of the busiest years in the past decade in terms of the number of health care mergers and acquisitions announced—1,063, up 5.9 percent compared to the 1,004 announced in 2011-- according to Irving Levin Associates, a health care research firm. Last year ranked second only to 2007, when 1,079 deals were announced.
“The market bottomed out in 2009, and then resumed when the health care reform act was signed,” said Irving Levin editor Stephen Monroe. The market activity in hospital mergers and acquisitions has not seen such a boom since the 1990's, he said.
The flurry of mergers is in direct response to falling Medicare and Medicaid payments from the federal government, as well as declining patient admissions. Hospitals that have long relied on patient volume to pay the bills are now being paid based in part on the total care of a patient, and will be rewarded for improving patient outcomes and cutting down on re-admissions. It’s a fundamental shift in the way hospitals do business, and the adjustment has been painful for many institutions, requiring a new focus on cost reduction and building efficiencies.
Community Health Systems is a for-profit hospital operator headquartered in a suburb of Nashville that owns, operates or leases 135 general acute-care hospitals in non-urban and mid-size markets in 29 states throughout the country. CHS currently runs four hospitals in Ohio: Northside Medical Center in Youngstown, Affinity Medical Center in Massillon, Trumbull Memorial Hospital and Hillside Rehabilitation Hospital in Warren.
In July, CHS announced it would pay a total of about $7.6 billion to acquire Naples-based fellow hospital operator-giant Health Management Associates, Inc. (HMA), which currently operates 71 hospitals in 15 states. When completed, CHS would own or operate about 206 hospitals with more than 31,000 beds in 29 states.
Akron General employs about 5,166 people and has 1,084 doctors and nurses on its medical staff. The nonprofit health system is one of Akron’s largest private employers. Last year, the hospital reported $5.6 million in operating revenue.
Along with its flagship Akron General Medical Center, the health system includes Lodi Community Hospital, an inpatient and outpatient rehabilitation facility, health and wellness centers in Montrose, Stow and Green, a physician group practice and other outpatient locations.
"I think this is a very exciting way to embrace all the challenges we face," Huston said. "At the end of the day this is about how we can do a better job."
"Except for people seeing some new facilities or new programs, I don't think the patient or community will be able to see much of a difference," Stover said. "This is a great thing for Akron General, the Cleveland Clinic and CHS."
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