Vatican signs off, Mercy-EMHS merger on track for September

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PORTLAND — Mercy Health System, which operates the city’s second-largest hospital, has taken another step toward merging with Bangor-based Eastern Maine Healthcare Systems.

The hospitals are on track to complete the deal in September, Mercy President and Chief Executive Officer Eileen Skinner said Monday.

Mercy received approval from the Vatican last week to transfer assets to EMHS, Skinner said. The approval was necessary because Mercy is affiliated with the Roman Catholic Church.

Mercy signed a letter of intent to negotiate its sale to EMHS on Dec. 7, 2012, after previous negotiations fell through with Steward Health Care System, a for-profit Massachusetts hospital chain.

Since then, the proposed sale has made rapid progress.

After inking a “definitive affiliation agreement” in January, Mercy and EMHS received antitrust clearance from the Federal Trade Commission in March. On May 7, the state Department of Health and Human Services held a public hearing on the two hospital networks’ application for a certificate of need to complete the merger.

“That hearing was a love fest,” Skinner said, noting that physicians, patients, and other community members spoke in favor of the merger, while no one expressed opposition.

The certificate of need application is now under review by the state. A decision is expected by September, and if the certificate is granted, it would be the last step before the transaction is completed.

Joining EMHS would represent a major change for Mercy, which was founded in 1918 as Queen’s Hospital and later changed its name after the Sisters of Mercy, a Catholic order of nuns, took over operations. Today, Mercy operates 230 hospital beds at its State Street and Fore Street campuses, as well as primary care clinics and urgent care centers.

Unlike Mercy, EMHS has no religious affiliation, although both networks are nonprofit organizations. EMHS comprises seven member hospitals in central and northern Maine, including its flagship 350-bed facility in Bangor, Eastern Maine Medical Center. The network also includes physician practices, nursing homes and home health organizations.

While the differences in geography and affiliation might make the merger seem an odd pairing, Skinner said the potential partners complement each other.

“The cultural fit is strikingly positive,” she said. “The way (EMHS) approaches goals is almost identical. Working with (EMHS) is almost like working with ourselves.”

According to Skinner, the driving force behind the merger is the federal Affordable Care Act – also known as “Obamacare” – and its creation of “accountable care organizations,” which are health-care networks that are paid on the basis of quality measurements and cost efficiency. The change is putting new economic pressures on hospitals, many of which are teaming up in response.

“This is about population health, and you have to get scale,” she said. “This is not about moving Mercy patients up to Eastern Maine Medical Center.”

Skinner said Mercy patients will notice few changes if the merger is successful. While Mercy will begin to use the EMHS logo, the biggest changes will be behind the scenes.

According to the certificate of need application, EMHS will help restructure $73 million of Mercy’s existing debt, and pay $16 million owed to Catholic Health East, Mercy’s current parent company. In addition, EMHS will spend $115 million to integrate Mercy into the larger network and to consolidate Mercy’s two campuses.

Some critics have claimed the presence of EMHS in southern Maine could lead to an “arms race” with Maine Medical Center and its parent, MaineHealth, in which both systems would compete on the basis of expensive, redundant services and capabilities.

Indeed, earlier this month Maine Medical Center announced plans to add five new operating suites to its Bramhall Street campus at a cost of $40 million. The project, which also requires certificate of need approval and permission of the city’s Planning Board, would begin this fall.

Skinner said she’s not worried about increased competition, and that it’s important patients have a choice of viable hospitals in Portland.

“We collaborate more than we compete. When it makes sense because of common goals, we work together with Maine Medical. I call it ‘coopetition,'” she said.

Still, she expressed some skepticism about the expansion.

“I don’t think there’s enough information yet to draw a conclusion, but given patient trends I have to ask whether (the expansion) is appropriate,” she said. “At this point I have more questions than answers.”

William Hall can be reached at 781-3661 ext. 106 or Follow him on Twitter: @hallwilliam4.