Abington, Holy Redeemer still face merger pressures

Days before the deal was called off, Michael B. Laign (left) of Holy Redeemer Health System and Laurence M. Merlis of Abington Health discussed the partnership
Days before the deal was called off, Michael B. Laign (left) of Holy Redeemer Health System and Laurence M. Merlis of Abington Health discussed the partnership (MICHAEL S. WIRTZ / Staff Photographer)
Posted: July 30, 2012

Abington Health and Holy Redeemer Health System ended their merger talks this month after a community uproar over Abington's plan to stop performing abortions.

But the financial pressures on the health-care industry that led to the merger proposal remain, and are only expected to intensify.

Where does that leave the two institutions that are practically neighbors in Montgomery County towns north of Philadelphia?

Abington has long been considered a suburban gem that would be prized in a larger network, but has fiercely guarded its independence and is cushioned by $481 million in cash and investments.

Options for Holy Redeemer, in Meadowbrook, appear more limited - if potential merger partners must adopt the antiabortion stance of a Catholic hospital.

Despite the Abington experience, Holy Redeemer's chief executive, Michael B. Laign, said a deal with a secular institution was possible. "I know it's doable. It's been done successfully in other parts of the country," he said.

Health-care industry experts said they expected Abington and Holy Redeemer to continue looking at deals with other hospitals.

The abandonment of the Abington-Holy Redeemer talks "doesn't remove the need for both organizations to get bigger and have broader geographic coverage," said Alan Zuckerman, president of Health Strategies & Solutions Inc. in Philadelphia.

Analysts expect a consolidation wave in the health-care sector in response to long-term weakness in the U.S. economy, overwhelming state and federal budget woes that will force further cuts to health-care spending, and the anticipated shift of financial risk from health insurers to health-care providers.

The Philadelphia region has seen three hospital deals already this year. Underwood-Memorial in Woodbury agreed to merge with the South Jersey Health System of Vineland. Prime Healthcare Services, a California for-profit firm, bought Roxborough Memorial for $23.5 million. And Temple University Health System took over Fox Chase Cancer Center for $84 million.

Temple might not be done. CEO Larry Kaiser has said his organization probably needs to at least triple in size to $3 billion or more in annual revenue to compete in the future. Temple declined to comment for this article.

Jefferson Health System, which is the largest in the region and has clinical affiliations with Holy Redeemer, is standing pat for now. "We have not been in negotiations with any hospitals about becoming new members of the Jefferson Health System," said David F. Simon, Jefferson's executive vice president and chief legal officer.

Analysts suggested that Catholic Health East (CHE), which is based in Newtown Square and owns 35 hospitals in 11 Eastern states, including several in the Philadelphia region, would be an obvious partner for Holy Redeemer.

CHE officials declined to comment. But in May, Peter DeAngelis, CHE's executive vice president and chief operating officer, told trade publication Modern Healthcare that the system would like to get bigger and "will target markets where it believes that growth is achievable."

Given the region's slow population growth, Philadelphia is probably not near the top of CHE's list of targets.

Absent the deal with Holy Redeemer, Abington's chief executive, Laurence M. Merlis, said Abington would continue looking for ways to grow, investing in its primary-care physician network, adding satellite locations, and boosting its market share by doing more to keep patients in its system for more of their care.

"We want to be proactive. We don't want to wait," Merlis said. Abington had a narrow 1.6 percent operating margin in the nine months ended March 31, but had a stronger fourth quarter to finish the year at better than 2 percent, chief financial officer Michael Walsh said.

Joshua Nemzoff, a hospital mergers and acquisitions specialist in New Hope, said Abington Health, which owns Abington Memorial Hospital and Lansdale Hospital, is big enough to remain independent. "I think the reason Abington would consider merging with Holy Redeemer is to keep someone else from literally coming into their back yard," he said.

Officials at Holy Redeemer, which is anchored by a 242-bed hospital and includes significant nursing-home and home-care operations, have been explicit about their system's need for partnerships.

Among the strategic priorities at Holy Redeemer for the current fiscal year is the completion of "an affiliation/integration with a local or regional health system that respects our Catholic identity," a disclosure to bondholders said.

Holy Redeemer had a $2.9 million loss in the nine months ended March 31, but CEO Laign said that the full-year results would be break-even or close to it.

Despite the current operating weakness at Holy Redeemer, "their diversification should be of some assistance. Home health is going to be a sought-after part of the health-care continuum," said Fitch Ratings analyst Eva Thein.

Holy Redeemer has continued to invest in the home-care business, agreeing in May to take over VNA Home Care of Mercer County Inc. It is also working on outpatient facilities in Bensalem and Warminster.

"We are very comfortable with our position in the marketplace today," Laign said.

Contact Harold Brubaker at 215-854-4651 or hbrubaker@phillynews.com.

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