Hospital systems intend to merge
St. Peter’s, Ellis see combo as a “natural evolution” of progress
St. Peter’s Health Partners and Ellis Medicine have signed a nonbinding letter of intent to merge operations, officials from the organizations confirmed Wednesday.
The two health care organizations, based in Albany and Schenectady, respectively, are among the region’s largest hospital systems. Though they have operated independently for years, they began a collaboration in 2014 to coordinate care between physicians, health systems and other health care providers with the goal of improving population health and lowering costs.
That collaboration successfully reduced costs for the area’s Medicare and Medicaid populations, but could only go so far, said James Reed, president and CEO of St. Peter’s Health Partners.
“Our problem is you reach a point where you can’t go any further than that in terms of improving things because we’re bound by legal regulations,” he said. “And that’s what brought us to this point. The announcement we’re making now, rather than being I think a big surprise, is the natural evolution of a process that’s been going on for at least six years.”
With the signing of a letter of
intent, St. Peter’s and Ellis will now begin the process of developing an organizational structure, he said. At a virtual news conference Wednesday, Reed said no final decisions have been made about this structure, but suggested it may resemble the model St. Peter’s currently uses — in which individual corporations still exist but operate under a single, shared board of directors made up of representatives from each group.
It should take about four months for each organization to vet the plan and reach a final agreement, said Ellis Medicine CEO Paul Milton. The plan would then go through a federal and state regulatory review process that could take another six to seven months, he said.
A merger will have benefits for both organizations, as well as the region as a whole, Reed said. The “stability and security ” of a large health system will help attract more physicians to the area and allow the organizations to expand their various specialties. Health care best practices can be expanded and integrated across the systems, and the combined scale of the organizations will produce cost efficiencies when it comes to purchasing and supplies, he said.
“I would also like to underscore that, as SPHP and Ellis evaluate a path forward, it is with an eye toward respecting the heritage of all the institutions that make up SPHP and Ellis Medicine, while expanding access to care and improving outcomes for the Capital Region community,” he said.
Both Ellis and St. Peter’s health systems were created from mergers that occurred this century, but their forerunners have roots dating back to the 1800s.
The original Ellis Hospital dates back to 1885, when the Schenectady Free Dispensary opened on Union Street with just five beds. It grew and relocated over the years, eventually occupying a plot at the corner of Nott Street and Rosa Road. In 2006, a state commission ordered the restructuring of hospitals statewide, and Ellis Hospital, the old St. Clare’s Hospital on Mc
Clellan Street (now an outpatient center) and Bellevue Woman’s Center in Niskayuna consolidated to become Ellis Medicine. A Clifton Park urgent care location was constructed in 2012.
St. Peter’s Health Partners, which is privately owned by national Catholic health system Trinity Health, formed in 2011 from a merger of three local health systems: Northeast Health, St. Peter’s Health Care Services and Seton Health. Four legacy hospitals in Albany and Troy came with the package — St. Mary’s, which opened in 1848; Albany Memorial, which opened in 1868; St. Peter’s, which opened a year later; and Samaritan Hospital, which opened in 1898. Together, they are certified to operate more than 850 beds.
At just 438 beds, Ellis remains the smaller of the two systems.
In 2016, its board set out to determine whether a potential merger, consolidation or affiliation with another entity might better serve the organization and community, and considered proposals from both local and out-of-state health care organizations. Leaders declined to name those behind the offers, citing confidentiality agreements, but confirmed they had received responses from within the “local market.”
In 2018, however, the Ellis board concluded that remaining a smaller, local and independent operation would be in the community’s best interest.
“We know it’s going against the grain,” Milton said at the time. “In any kind of business, there are some pros you get from being bigger, whether you’re negotiating on rates or to buy supplies, you’re probably a little bit stronger. But there are also strengths to being smaller. You’re more nimble, more creative, more in control of your own destiny.”
Asked Wednesday what had changed, Milton said the timing simply wasn’t right in 2016, but noted that the board agreed to remain open to the idea moving forward.
“I think as they stayed on doing the homework and studying what to do ... they came to the point that now’s the right time and this is the right partner,” he said.
It’s unclear how much the coronavirus pandemic may have impacted the organization’s change of heart. Hospitals nationwide were hit hard financially as revenuegenerating, nonessential procedures were halted and people began to avoid seeking care for fear of catching the virus.
By June, the pandemic had led to operating losses of about $56 million for Albany Medical Center, $50 million for Ellis Medicine in Schenectady, and $40 million for St. Peter’s Health Partners. Federal relief funds have helped to offset some of the losses, but hospital leaders said they expect to feel the pinch well into 2021.
Both Milton and Reed said the decision wasn’t directly motivated by the financial stress of the pandemic. Rather, the pandemic exacerbated market forces that were already causing the hospitals to consider consolidation, they said. Reed pointed to the issues hospitals encountered when trying to acquire PPE. Economies of scale would make such purchases like those a lot easier, he said.
“Our position as health care leaders in our region demands that we always look ahead with a focus on what’s best for the longterm health of our communities, and evaluate how we are delivering care today and how care can best be delivered in the future,” Reed said. “We owe it to the people of the Capital Region to do so.”
I would also like to underscore that, as SPHP and Ellis evaluate a path forward, it is with an eye toward respecting the heritage of all the institutions that make up SPHP and Ellis Medicine, while expanding access to care and improving outcomes for the Capital Region community.”
— Dr. James Reed, president and CEO
of St. Peter’s Health Partners