By Bill Hendrick
The proposed deal between St. Joseph’s Health System and Piedmont Healthcare to “create efficiencies” by forming a “joint operating company” is similar to a merger that — in the for-profit world — would undoubtedly result in layoffs.
But both chief executive officers, Kirk Wilson of St. Joseph’s and Tim Stack of Piedmont, say that won’t happen. Most likely, that is.
“Never say, ‘Never,’ ” Wilson said. “We’ve both laid people off before.”
However, some employees at both institutions may be forced to change jobs and retrain for new positions if various departments and functions are combined as a result of the proposal announced a few weeks ago.
The CEOs also say that:
- The hospitals will keep their historic brand names, and that neither plans to promote the other in signage or advertisements. Wilson, however, said each may refer to the other as an affiliate in some way.
- Patients at Piedmont’s facilities won’t hear the Roman Catholic devotionals that now are broadcast twice daily at St. Joseph’s, which is sponsored by the Sisters of Mercy and a member of Catholic Health East, a multi-institutional health system based in Newtown Square, Pa. Daily chapel services will continue at St. Joseph’s. Piedmont Hospital offers the use of a chapel to those who might want it.
- It is unclear whether the combined entity, to be called a Joint Operating Company, will have a name. And it hasn’t been decided yet who will call the shots, or who will run the board of directors of the JOC. It might be neither Wilson, nor Stack. But it might be one of them.
- Piedmont will have one more representative than St. Joe’s on the board of trustees of the new JOC. A super-majority vote of the JOC board will be required on major issues.
- Both CEOs are expected at this point to maintain their current titles at their respective hospital companies.
- Piedmont Hospital offers birth control counseling and services. That won’t change under this agreement.
- Electronic medical records may be shared in some way that is yet to be worked out.
- The JOC “will essentially double the size of our individual cardiology programs,” Wilson said. “We have world class robotic heart surgery, a heart transplant program, and it will be stronger with the help of Piedmont cardiologists.”
- Doctors at both hospitals are expected to maintain their current affiliations.
Because of the national crisis in health care that has left many hospitals bleeding red ink, and anticipated costly changes required under President Obama’s health care bill (which is now law), St. Joseph’s went looking in anticipation of reform for a solid hospital to “partner up” with many months ago, Wilson tells Reporter Newspapers in an interview.
Stack said Piedmont “heard that St. Joe’s was looking for a partner so we contacted them.”
“We looked at 10 different strategic partners,” Wilson said. “After nine months of discussions, Piedmont came out to be the best among potential equals. We talked with all of the highly regarded health care systems in Atlanta.”
Wilson said “it’s a rough and tumble world out there now” for hospitals, due to changes in health care rules and “what the recession did to all providers.”
“We’re doing this for the same reasons airlines are combining,” he added. “We are what they aren’t and they are what we aren’t. We hope to parlay this into additional sites of care in greater Atlanta and north Georgia.”
He also said that “people probably won’t even notice the superstructure,” but that “it will allow us to do things together that we couldn’t do apart, to share certain services where appropriate.”
The state will soon begin taxing hospitals’ revenues, “and we have no ability to pass that on to patients,” Wilson said, “but by consolidating things you can save. The new tax will hurt all hospitals with the exception of Grady [Memorial Hospital] and Children’s [Health Care of Atlanta].”
Stack said St. Joseph’s will remain Catholic, Piedmont secular, and electronic medical records may be shared.
“Piedmont is doing just fine,” Stack said. “Piedmont will do better. We have organizations in the south side of town, only a small hospital in the north of town, so we want to share our services with St. Joe’s hospitals and facilities.” He adds that “being on Pill Hill will help” Piedmont because the area is more convenient for many current and would-be patients.
Stack said he sees the head of the board of the new JOC “reporting to me. But it won’t be me. This is a Joint Operating Company, not an acquisition. Preferably, it will be Kirk.”
Stack said one reason no layoffs are expected is that “the health care industry is growing” and “we’re going to need a lot of good folks, though some will be redeployed.”
Piedmont is the bigger player in the deal, with four hospital facilities to two for St. Joe’s.
But the fact is, it’s going to be two to three months before details are worked out and many mysteries still exist as to operation procedures, both CEOs say.
The JOC board of directors will be calling the shots for the new entity.
The deal also could include building joint facilities. Wilson said St. Joseph’s expects the arrangement to cut its costs by up to 5 percent annually, or $20 million.
In theory, the joint operation will allow the hospitals to purchase supplies at cheaper rates because of larger orders.
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Piedmont Healthcare and St. Joseph’s Health System plan to combine some of their operations in a new “joint operating company” as a way to cut costs. Kirk Wilson, Chief Executive Officer of Saint Joseph’s Health System, answered some questions about how the new company will be structured and how it will save money for the two hospital systems.
Q. How will the new entity work? Will it operate separately from the hospitals? Will its board of directors report to the hospital boards or would they report to it?
A. Both St. Joseph’s Health System and Piedmont Healthcare are holding companies that have multiple operating units reporting to them. In essence a new holding company (the Joint Operating Company) will be created to hold those operating units, contributed to the JOC by either company (such as Saint Joseph’s Hospital).
Each operating unit (hospital) will then be able, through the JOC, to share services with each other to save costs. Those operating units not contributed to the JOC will stay reporting to their current parent holding company, either St. Joseph’s Hospital System or Piedmont Healthcare.
Q. You have described the arrangement as “efficient and cost-effective.” How do you see it saving money for St. Joseph’s and Piedmont Healthcare?
A. We will share IT services and some back office services (accounting, billing, etc).
Q. What functions now performed by the separate hospitals do you foresee the JOC taking over?
A. Saint Joseph’s will contribute roughly $300 million in assets (both hospitals, its medical group and its research institute). Piedmont will contribute an equal amount or more and is still identifying those units/assets to contribute.
Q. Would the JOC deal with administrative and support functions only, or would it also eliminate duplicated medical services?
A. Initially probably just the former, but later on certain medical services may be coalesced. We want the clinicians to come to administration and suggest where we can better patient care through such consolidation/strengthening. A five-year plan will be created to address those opportunities.
Q. What medical benefits do you think St. Joseph will realize from taking part in the JOC. Likewise, what medical benefits will Piedmont Healthcare realize from the arrangement?
A. Piedmont Healthcare will benefit from St. Joseph’s expertise in robotics and heart transplantation. St. Joseph’s will benefit from Piedmont Healthcare’s expertise in liver transplantation and medical services billing.
Q. What’s next in the process?
A. We will complete a definitive agreement and five-year plan in the next 90 days, then apply for various regulatory approvals.
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Tim Stack, Piedmont Healthcare’s chief operating officer, also answered questions about the new “joint operating company” being set up by Piedmont and Saint Joseph’s Health System.
Q. How will the new entity work? Will it operate separately from the hospitals? Will its board report to the hospital boards or would they report to it?
A. The proposed new entity, the Joint Operating Company, would have its own CEO and board of directors, as does Piedmont Healthcare and the current four Piedmont Healthcare hospitals. The proposed JOC would combine certain assets from both systems. It has not yet been decided what assets Piedmont Healthcare would contribute to the JOC.
The JOC Board would report to the Piedmont Healthcare Board as majority interest holder and manager. If assets contributed by Saint Joseph’s or Piedmont have operating boards, those boards would report to the JOC Board.
Q. Hospital officials have described the arrangement as “efficient and cost-effective.” How do you see it saving money for St. Joseph’s and Piedmont Healthcare?
A. We do expect to see savings; however, until the agreement is complete and the relationship is better defined, it is difficult to say how much it would be. Savings could be realized in supply costs, for example.
Q. What functions now performed by the separate hospitals do you foresee the JOC taking over? Would the JOC deal with administrative and support functions only, or would it also eliminate duplicated medical services?
A. A major goal is to make the healthcare system more efficient. But, it is currently undecided which functions or services would be part of the JOC or what services might be consolidated, if any.
Q. What medical benefits do you think Piedmont Healthcare will realize from taking part in the JOC. Likewise, what medical benefits will St. Joseph’s realize from the arrangement?
A. We can’t speak for Saint Joseph’s, but we believe the two high quality healthcare systems working together would create sustainable excellence in patient care for the North Atlanta region.
Q. What’s next in the process?
A. If both organizations agree to move forward after the 90-day due diligence is complete, a definitive agreement would be developed and would require approval from both systems’ governing bodies as well as state and federal regulatory bodies.