Catholic hospital network could combine with Mich. group

Catholic Health East in Newtown Square and Trinity Health in Michigan have reached a preliminary agreement to form what management said would be the nation's second-largest Catholic health-care system, the two nonprofits said Wednesday.

If a final agreement is reached, the new organization would have 82 hospitals in 21 states coast to coast.

Catholic Health East's Philadelphia-area hospitals include St. Mary in Langhorne, Our Lady of Lourdes in Camden, and Mercy Fitzgerald in Darby. The region, including Trenton and Wilmington, accounted for 46 percent of Catholic Health East's $4.3 billion in revenue last year.

The systems, which together have more than $13 billion in annual revenue, said they had signed a nonbinding letter of intent with the goal of reaching a definitive agreement next spring.

The deal is further evidence that executives are convinced that health-care providers need to be bigger to survive in a world where they will be responsible for the health of large populations and receive payments based on results of care rather than the amount of care provided.

"Our assumption is that scale will matter going forward," Judith Persichilli, Catholic Health East's president and chief executive, said in an interview. "Scale nationally brings us together with a stronger organization that will allow us to meet the challenges of health-care reform."

Trinity, which had $8.9 billion in revenue the fiscal year ended June 30, is stronger financially, with an operating profit of about 3 percent, compared with about 1 percent for Catholic Health East.

Terri Wareham, a managing director at KaufmanHall, a health-care consulting firm in Skokie, Ill., called the merger a "very powerful and important consolidation."

"This is a clear reflection of what is happening nationally and how health-care providers are trying to deal with health-care reform. This is all about there's not enough money to go around for how care has been provided," said Wareham, who said she has had both systems as clients.

Many details remain to be worked out, but the boards have agreed that John R. Swedish, president and chief executive of Trinity, which is based in Novi, Mich., will retain those positions if the merger is completed. Persichilli will become executive vice president.

No decision has been made on where the new entity's headquarters will be, but Persichilli said, "Our vision is that there will always be an eastern division."

About 500 people work in the Newtown Square headquarters.

According to a Moody's Investors Service report in June, Catholic Health East has been creating a more centralized system to become more efficient. Those efforts are likely to continue. "We will look for economies of scale," Persichilli said.

Catholic Health East, which was founded in 1997 by 12 religious congregations and three health systems, has attempted to improve its financial results by leaving some markets, including Miami, Atlanta, and Carbondale, Pa., where it closed inpatient operations, Moody's said.

A year ago, Catholic Health East also expanded by combining St. Peter's Health Partners in Albany, N.Y., with two other systems to form its largest regional group.