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PeaceHealth officials moving slowly on proposed merger.

Byline: Tim Christie The Register-Guard

Officials of PeaceHealth and Southwest Washington Health System say they are in no rush to consummate a proposed merger they announced last month.

They've not yet contacted regulators in Washington state about their plans, nor have they decided whether they'll request a fast-track approval process.

"We're not there yet," said Peter Adler, chief strategy officer for PeaceHealth. "We're just starting due diligence."

PeaceHealth and Southwest said March 19 that they had begun formal merger discussions. Both are nonprofit health systems.

PeaceHealth, based in Bellevue, operates Sacred Heart Medical Center on two campuses in Eugene and Springfield, plus five other hospitals in Oregon, Washington and Alaska. Southwest operates Southwest Washington Medical Center, a two-campus hospital in Vancouver, Wash.

The merger will require approval from several regulatory agencies, including the Washington Department of Health's Certificate of Need program. Janis Sigman, manager of Washington's CON program, said all she knows about the proposed merger is what she read in the newspapers.

But once the two health systems develop an outline of the merger, she would expect them to ask regulators to look at the transaction and decide whether it even requires a review under Certificate of Need rules, she said.

These rules give regulators the authority to limit the addition of new health care facilities in a community. That's because an oversupply of hospital beds, for instance, could lead to an increase in the cost of health care.

Because PeaceHealth and Southwest are not proposing to add new beds, their merger proposal may not trigger a Certificate of Need review, Sigman said.

If Sigman's office determines the merger requires Certificate of Need review, that process is likely to take five or six months, she said. At the end of that, Sigman could approve the merger as proposed, deny it, or approve it with conditions.

Craig Armstrong, attorney for Southwest, told The Columbian newspaper in Vancouver last week that skipping the Certificate of Need process "would be our hope and our goal."

But Peter Adler, chief strategy officer for PeaceHealth, said the health systems have made no decisions whether to request a waiver on Certificate of Need review. The goal of the merger is to serve residents of southwest Washington, he said.

"We will work with all the regulators through this process," he said.

Similarly, Southwest spokesman Kenneth Cole said the organizations aren't far along enough in their due diligence to know what sort of regulatory requirements will come into play.

"Frankly, we don't know whether Certificate of Need applies in this case," he said.

He said Armstrong made his comments before conferring with PeaceHealth.

If Sigman decides no Certificate of Need review is required, the proposed merger still faces oversight from the Washington Attorney General's Office. That agency's antitrust division routinely reviews corporate mergers but has not yet received any documentation from the two health systems, spokeswoman Kristin Alexander said.

Meanwhile, Southwest's most recent financial statement shows the system to be operating in the black.

Southwest reported net revenue of $24.97 million for the fiscal year that ended in September 2008, the most recent financial statement on file with the Washington Department of Health.

Revenue from patient services was $1.06 billion. Its total operating revenue was $450.84 million, which reflects deductions for charity and uncompensated care ($26.3 million), contractual adjustments and adjustments with health insurers ($595.65 million).

The health system had total operating revenue of $446.9 million, including $226 million spent on salaries, wages and benefits. It wrote off nearly $30 million in bad debt.

Southwest officials said their board decided as part of a strategic planning process that the system needed to affiliate with a larger organization, and they wanted that organization to be PeaceHealth.

The two organizations share similar values, missions and heritage.

PeaceHealth officials say the merger would allow their organization to adapt some innovative programs that Southwest offers, such as a Medicaid managed care plan and a medical residency plan.

In addition, southwest Washington is a rapidly growing region, and joining with Southwest puts PeaceHealth in a better position to serve the area, they said. PeaceHealth already operates a hospital and medical practice in Longview, Wash., about 40 miles north of Vancouver.

Finally, they said, the merger would enable PeaceHealth to grow from a $1.4 billion organization to a $2 billion organization.
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Title Annotation:Business; The Sacred Heart operator would combine with Southwest Washington Health System
Publication:The Register-Guard (Eugene, OR)
Date:Apr 8, 2010
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