EMHS to invest at least $115 million in Portland’s Mercy Health

Mercy Health System of Maine is in talks to merge with Eastern Maine Healthcare Systems.
Mercy Health System of Maine is in talks to merge with Eastern Maine Healthcare Systems. Buy Photo
Posted April 18, 2013, at 4:32 p.m.
Last modified April 18, 2013, at 7:16 p.m.

BREWER and PORTLAND, Maine — Eastern Maine Healthcare Systems plans to spend at least $115 million over the next five years to fold Portland’s Mercy Health System of Maine into its network of health providers, according to new documents filed with the state.

EMHS and Mercy, which announced plans to merge in late December, late last week filed a certificate of need application with the Maine Department of Health and Human Services, which will review the proposed deal. The application, provided to the Bangor Daily News by DHHS on Thursday, shed further light on on the merger plan, revealing that EMHS was just one of seven potential suitors for Mercy.

EMHS, parent organization to Bangor’s Eastern Maine Medical Center and six other hospitals throughout northern and eastern Maine, would invest in the financially ailing Mercy as well as restructure $73 million of its existing debt, according to the application. Pending approval from its board, EMHS would spend at least $115 million in coming years to consolidate Mercy’s operations, which are now split between its original 230-bed hospital on Portland’s State Street and its newer Fore River campus. The money also would finance Mercy’s integration into EMHS and both organizations’ pursuit of better ways to deliver care in light of national health reform, according to the application.

EMHS additionally will pick up the $15.7 million tab that Mercy owes to its parent organization, Pennsylvania-based Catholic Health East, according to Mercy’s affiliation agreement with EMHS, another document that was filed with the certificate of need application. The Brewer-based health system also offered to float Mercy a revolving line of credit of up to $7 million before the deal closes, which Mercy can tap into for capital and operating needs, the agreement states.

“While we continue to make good progress toward finalizing the affiliation between EMHS and Mercy, much still needs to be accomplished,” Suzanne Spruce, chief communications officer for EMHS, wrote in an email. “One upcoming milestone is the public hearing related to the certificate of need. This event will take place in early May, and is an early step in the process of obtaining CON approval from the Maine Department of Health and Human Services.”

In addition to the financial commitment it’s making to Mercy, EMHS also recently revived plans to construct a seven-story tower at Eastern Maine Medical Center as part of a $250 million project. In the application, EMHS assured regulators that it has the financial resources to support Mercy as a new member, one criteria of the state approval process.

“The proposed affiliation considers the evolution of care in hospitals in Maine, recognizes the financial constraints of purchasers of health care services, puts the financial resources of Mercy and EMHS and the surrounding communities to good use, and assures continuing access to patient centered care in southern Maine,” the application states.

Mercy struck a deal with EMHS after its planned merger with Steward Health Care System, a for-profit Massachusetts hospital chain, fell through. Mercy had hired consultants in the fall of 2011 to help it find a new partner, with the support of Catholic Health East. Mercy reached out to 32 parties, ultimately attracting interest from seven, according to the application.

The potential suitors aren’t named in the document. Mercy considered partnering with a national chain, according to the application.

The proposed merger has sparked curiosity about why EMHS wants to expand its reach beyond northern, central and eastern Maine. The merger would bring EMHS into the backyard of MaineHealth, Maine Medical Center’s parent system and Mercy’s main competitor in Portland.

The merger would not hamper competition or harm other providers in Greater Portland, EMHS and Mercy assert in the application. Some observers of the deal, however, have expressed concern that EMHS competing directly with MaineHealth could duplicate health services in the Portland area and lead to higher health care costs.

EMHS and Mercy disagree, saying in their application that “health care costs within the service area will not be adversely impacted by this affiliation. … This transfer of ownership will benefit Maine patients and families and improve care across the state.”

The deal won federal approval in March, with regulators raising no concerns that the merger would stifle competition.

The affiliation could draw some Portland patients to Mercy through the hospital’s planned participation in EMHS’ “accountable care organization,” the application states. Accountable care organizations are part of national health reform efforts and involve groups of providers tasked with saving taxpayer money by better coordinating treatment for seniors covered by Medicare. The model aims to move away from paying doctors and hospitals for each visit and procedure, instead rewarding them for keeping patients well.

The merger will ensure that Mercy remains a high-quality, low-cost provider in southern Maine, the application states. The Mercy system also operates VNA Home Health Hospice in South Portland, an addiction treatment center in Westbrook and primary and urgent care centers.

EMHS expects to put Mercy on stronger financial footing by helping it consolidate services at the Fore River campus, a move projected to save $7 million annually. Mercy also would pay EMHS less money than it pays Catholic Health East for some administrative services, saving Mercy $2 million in 2014, the application states.

For its part, EMHS will get its hands on Mercy’s wide network of physician practices, particularly primary care providers who serve more than 27,000 patients. While Mercy has lost money acquiring those practices in recent years, EMHS expects patients who see Mercy doctors to drive future growth in outpatient visits.

Outpatient visits — which include services such as blood tests, X-rays, physical therapy and some basic surgeries — have proven increasingly critical to hospitals’ bottom lines as insurers, employers and others push to reduce costly hospital stays. Some hospital systems themselves, including EMHS, are working to reduce inpatient admissions through their accountable care models, hoping to cut down on serious illnesses through better preventive care.

The application also offered a snapshot of the wider pool of patients Mercy brings to the table. Unlike in EMHS’ territory farther north, the population in southern Maine is expected to grow.

Its residents also earn more. Cumberland County has the lowest unemployment rate in Maine, at 6.3 percent in February, compared with 8.2 statewide. Household incomes in Mercy’s service area are higher than the Maine average, a trend expected to continue over the next five years, the application notes.

Employed people with higher incomes are more likely to carry private health insurance, which reimburses hospitals more generously than government-sponsored coverage through Medicaid and Medicare.

Mercy and EMHS aim to make the merger final by Sept. 30, pending approval from the state and, because Mercy is a Catholic health organization, the Vatican. Mercy would maintain its Catholic identity after becoming a member of EMHS.

A local board would continue to be involved in the oversight of Mercy after the merger, according to the application.

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