🔒Here’s why one of CT’s few remaining independent hospitals is seeking a larger affiliation partner

It’s no secret that Connecticut’s roster of independent hospitals has been shrinking over the past decade.

While some unaffiliated hospital CEOs still foresee an independent future, at least one said joining a larger healthcare group is inevitable due to financial constraints and pressures to keep up with modern-day technology, including electronic health records.

The pandemic created even more uncertainty for smaller healthcare systems, particularly in 2020 when hospitals were forced to cancel key revenue-generating elective procedures, which led to lay offs and other cost-cutting measures just as many care providers were seeing an influx of COVID-19 patients.

Subsequent state and federal support helped shore up many hospital budgets, but that didn’t change the longer-term trajectory for some organizations.

Case in point: Putnam-based Day Kimball Healthcare is in the process of moving toward an affiliation with Covenant Health Inc., a Catholic, not-for-profit health network based in Massachusetts.

Day Kimball CEO Kyle Kramer said his hospital group began looking into affiliation options more than five years ago. It considered joining Hartford HealthCare, which operates several hospitals in the state including Hartford Hospital, and Yale New Haven Health, before pursuing an affiliation with Covenant Health.

“We explored a partnership with several entities including Hartford HealthCare and Yale New Haven Health, but it was ultimately not a good fit for us, from a corporate standpoint and from a clinical alignment standpoint,” Kramer said.

If the Day Kimball deal is approved by state and federal regulators, it would be the first major Connecticut hospital affiliation or merger since 2019, when Hartford HealthCare completed its purchase of Bridgeport-based St. Vincent’s Medical Center.

While such consolidation has become commonplace, some have raised concerns about how the trend will impact competition in the marketplace and the overall cost and quality of health care.

That issue came to a head earlier this month when St. Francis Hospital and Medical Center filed a federal lawsuit against its crosstown rival Hartford HealthCare, which, besides the St. Vincent’s deal, has been active in buying up smaller medical groups.

In its lawsuit, St. Francis Hospital accused Hartford HealthCare and its subsidiaries of trying to create a monopoly on hospital services by acquiring physician networks, particularly cardiologists, and demanding that they refer their patients only to Hartford HealthCare.

Hartford HealthCare has said the lawsuit is without merit.

Regardless of how that legal drama plays out, Hartford HealthCare and Yale New Haven Health are the dominant health systems in Connecticut. In fiscal year 2020, they collectively earned nearly 60% (or $9.5 billion) of the $15.9 billion in operating revenues reported by the state’s 12 remaining hospital systems.

By comparison, Day Kimball Healthcare reported $126.6 million in operating revenue in fiscal year 2020, and a $11.2 million operating loss, according to data compiled by the Office of Health Strategy.

Cost pressures

Day Kimball, which has been independent since 1894, has about 1,200 employees. Covenant Health currently owns and operates 12 skilled nursing and senior living communities and three hospitals across New England and Pennsylvania. It recorded $718.7 million in operating revenue in 2020, according to its audited financial statement.

Day Kimball would be Covenant’s first Connecticut outpost.

Kramer, who has been CEO since Aug. 2020, said the opportunity to affiliate with Covenant Health, which would own and operate the hospital when and if the deal is approved, was the best fit of all its options.

“We believe Covenant Health is better as a clinical collaborator and gives us that strength of partnering with a facility similar to us, while still maintaining the ability to collaborate clinically with larger medical centers for advanced specialist care,” said the 53-year-old Kramer, adding he anticipates the deal will be completed by the end of the year.

Gaining access to more capital is a major consideration in the deal, Kramer said.

“Electronic health records are a huge piece [for the affiliation],” he said. “We already have our own health record system, but we needed to upgrade it and on our own that would be a very expensive proposition. But, working with Covenant we can leverage the system they already have in place.”

In addition, tapping into the resources of a larger health entity is something Day Kimball can’t do now.

“Consulting with their doctors will be one of the greatest benefits because our medical staff and nursing staff and clinical team members will have colleagues they can reach out to with questions,” Kramer said. “How do you appraise this and how do you manage that? Obviously, right now we are dealing with a pandemic and this collaboration could allow us to explore things like how to manage patient intakes and how to manage testing with swabs. It’s all an opportunity for collaboration.”

Kramer said he also believes that patient care and access will improve because Day Kimball will be able to offer more services in Windham County.

Federal oversight

Kurt Barwis is the president and CEO of Bristol Health, parent to Bristol Hospital, another independent care provider with about 1,750 employees. It reported $200.9 million in revenue and a $3.4 million operating loss in fiscal year 2020, according to the Office of Health Strategy.

Bristol Health’s board of directors has not yet seen the need to merge, but “that conversation has never stopped being had,” Barwis said. An advantage of remaining independent, he added, includes maintaining a “local culture and family feel.”

“Decisions also happen quickly, which helps us to engage the stakeholder community immediately in terms of improvements, quality or safety,” he said.

Barwis predicts the healthcare consolidation wave in Connecticut will slow largely because many smaller hospitals have already joined larger systems.

But there could also be added pressure from federal government oversight.

President Biden last summer signed an executive order that aims to crack down on healthcare industry consolidation by encouraging the Department of Justice and Federal Trade Commission to more vigorously enforce and possibly revise antitrust laws related to mergers involving insurers, hospitals and prescription drug companies.

“Hospital consolidation has left many areas, particularly rural communities, with inadequate or more expensive healthcare options,” the executive order said.

Barwis said the order could have “serious implications” on future mergers, even as challenges faced by smaller hospitals — including constrained negotiating power with insurers and limited resources to spend on marketing, business development and legal teams — persist.

He said most care providers, big or small, will shift their focus on how to better align the various businesses within their systems.

“Most think of Bristol Health as a small hospital, but that’s far from the truth,” he said. “Bristol Health is a highly integrated small system comprising the hospital, a large physician medical group, skilled nursing facility, home care and hospice agency and EMS. Aligning and optimizing operations can be extremely difficult but yield huge gains in efficiency, effectiveness, outcomes and access.”

‘Reality of health care’

Angela Mattie, a professor of management at Quinnipiac University who focuses on the health industry, said hospital consolidation is “the reality of health care.”

Deals allow hospitals to achieve economies of scale and expertise, she said.

“You can deploy clinical and administrative resources across the system,” she said.

A risk of consolidation is that a hospital can lose its local community connection, but there are ways to combat that, she said.

“A lot of hospitals have developed board and reporting structures that can keep a pulse on the local community,” she said.

Mattie also said the remaining independent hospitals in Connecticut remain viable because they have strong leadership. She singled out Bristol Hospital and Griffin Hospital in Derby as examples.

Halloran Sage partner Arnold Menchel has been a healthcare specialist and expert since 1979, including 33 years working in the Connecticut attorney general’s office.

Menchel said there will always be a place for independent hospitals in Connecticut and around the country.

“There will be a place for both kinds of hospitals, those that are independent and those that are part of a group,” he said. “The good independent [hospitals] have figured out ways to identify needs and then meet those needs. They can be and are very creative. They don’t have to worry about the impact systemwide involving multiple hospitals. They just have to figure out what they need and do a good job at it.”

A CT Mirror report was included in this story.