St. Francis Hospital and Medical Center CEO Chris Dadlez is in an enviable position compared to many of his peers.
While other hospital executives are scrambling to find a merger partner following the departure of Tenet Healthcare, St. Francis is working several deals that will expand its geographic footprint in northeast Connecticut and make it one of the best capitalized hospitals in the state.
The 682-bed nonprofit hospital recently agreed to acquire Stafford Springs’ Johnson Memorial Medical Center and is awaiting regulatory approval to merge with Michigan-based Trinity Health, a $14 billion Catholic care provider that owns 86 hospitals across the country.
Meantime, Yale New Haven Health System is quietly using St. Francis as an outpost to expand its reach into Greater Hartford, particularly for cancer care.
The Trinity deal could be a game-changer because it assures St. Francis a strong capital partner at a time of great economic uncertainty in the industry. The national hospital chain’s promise to invest $275 million in St. Francis over five years, and make Hartford its New England headquarters, has also caught the attention of other Connecticut hospitals, Dadlez said.
“My phone has actually been ringing off the hook [from hospital executives],” said Dadlez, who will become CEO of Trinity’s New England operations. “They know we are in a good position.”
During a recent hour-long interview with Hartford Business Journal, Dadlez, sitting in a corner office within the medical center’s Woodland Street campus, explained the strategy behind St. Francis’ recent deal-making and how its aims to secure the hospital’s long-term future.
Why Trinity?
St. Francis’ potential marriage with Trinity achieves several goals, Dadlez said.
Although St. Francis isn’t cash-strapped (it had a $14 million operating margin in fiscal 2014, making it one of the better performing hospitals in the state), Trinity’s $275 million investment will relieve the hospital’s debt and pension obligations, liabilities that have become problematic for many healthcare providers. St. Francis will also look to purchase more physician practices, open new outpatient centers, and make other investments to expand its integrated care delivery network, Dadlez said.
Trinity, Dadlez said, puts St. Francis in a better position to deal with a changing healthcare landscape, in which hospitals are being asked to manage patients beyond their walls. That requires establishing deeper partnerships with or acquiring primary, emergency, and post-emergency care providers to ensure patients have access to the best quality care in the correct, lowest-cost setting.
Establishing those ties across the continuum of care will become particularly important, Dadlez said, as payment models shift away from fee-for-service, in which doctors are reimbursed for every test and procedure they perform, to a system that incentivizes providers to keep patients healthy, and penalizes physicians if they aren’t successful.
With $14 billion in annual revenue and a double-A bond rating, Trinity has access to much more and cheaper capital than St. Francis could get on its own, Dadlez said.
For Trinity, the merger opens a stronger foothold in New England where it wants to expand its presence, said D. Scott Nordlund, Trinity’s executive vice president of growth, strategy and innovation.
St. Francis will anchor Trinity’s East Coast operations, which also includes Springfield, Mass.-based Sisters of Providence Health System, but other deals will likely follow, particularly in Connecticut, Dadlez said.
Eastern Connecticut Health Network, which owns Manchester Memorial and Rockville General hospitals, has already expressed interest in a merger, Dadlez said. St. Mary’s, Waterbury, and Bristol hospitals are also looking for partners after their deals with Tenet Healthcare collapsed earlier this year.
“The intent is to go after other opportunities,” Dadlez said. “There are plenty of options especially with Tenet leaving.”
ECHN spokeswoman Nina Kruse confirmed that the nonprofit hospital operator has issued a request for proposals to merge with several organizations including St. Francis.
“A partnership will allow ECHN to reinvest in programs, providers, technology and facilities,” Kruse said. “It will also allow us to benefit from the economic scale of a larger organization to reduce expenses as payments from the government continue to decline.”
Border Expansion
One opportunity is Johnson Memorial Medical Center, which St. Francis has agreed to purchase out of bankruptcy. The 101-bed hospital has experienced significant financial headwinds over the last decade, filing for bankruptcy protection twice and running consistent operating deficits.
Its latest Chapter 11 bankruptcy, filed in January, is still working its way through the courts as the hospital tries to reorganize its debts before being bought out.
Despite those financial issues, Johnson Memorial’s northeast Connecticut location remains attractive, Dadlez said, because it will allow St. Francis to expand its geographic footprint beyond Hartford County, offering patients in Stafford Springs and nearby towns easier access to its services. The two hospitals formed an affiliation in 2012, but an outright purchase will allow St. Francis to wring out more cost savings and put Johnson Memorial on a more sustainable fiscal footing, Dadlez said.
“If you are going to do population health management you need facilities in a larger geographic area to take care of patients,” Dadlez said.
Meantime, Yale New Haven Health System, which has been trying to gain a foothold in the Hartford market, is partnering with St. Francis Hospital on cancer care.
The two are working on a deal that would allow Yale-New Haven’s Smilow Cancer Hospital to essentially open a new location within St. Francis’ Woodland Street campus, intensifying competition with cross-town rival Hartford Healthcare, which recently inked a deal with New York’s Memorial Sloan Kettering to expand its own oncology services.
St. Francis’ partnership will allow Yale to bring its clinical trials and disease management programs to Hartford, where it is already getting some of its patients, said Abe Lopman, Yale’s senior vice president of operations and executive director of Smilow Cancer Hospital.
While the terms of the agreement are still being worked out, Yale would manage and oversee St. Francis’ oncology services, but doctors would remain employed by St. Francis. St. Francis’ doctors, many of which teach at UConn Health Center, would also gain appointments at the Yale School Medicine.
Lopman said partnering with St. Francis will allow Yale to expand its research efforts and clinical trials on a larger patient base, helping it achieve its long-term goal of curing the deadly disease.
“This seemed like a natural relationship for us,” Lopman said. “We believe every cancer patient should be eligible for clinical trials.”
