Cleveland-based MetroHealth is exploring a "strategic partnership" with another system to enhance services and reduce costs.
Hospital trustees last month agreed to hire a consultant or investment banker to advise them as they seek a partnership.
Dr. Akram Boutros, MetroHealth's CEO, said the system expects to identify a partner and then enter into some type of agreement to pursue that partnership by end of 2018.
“We are looking into a partnership because the health system is geographically constrained and we cannot operate facilities outside of Cuyahoga County,” Boutros said in an interview. “We don’t have access to the market share and the population to perform at the very best as times change.”
The system holds a 12% market share in the county. The Cleveland Clinic Health System and University Hospitals Health System Inc. hold larger market shares of 36% and 32%, respectively.
MetroHealth is open to partnerships with systems within and outside of Ohio, according to the recommendation approved by trustees. A partnership could bring specialists to MetroHealth and allow the public hospital to refer patients to experts at the partner institution.
The hospital won't consider a merger, sale of assets or affiliation that would change control within the system. "We are a public hospital. We will continue to be a public hospital with the same governance structure," he said in a statement.
Boutros said that now is the right time to look for both economies of scale and access to populations that can drive the system.
“The system's performance in 2017 is expected to be best in its 180 year history both operating quality and financial performance,” he said.
Boutros also believes the system has significant expertise to offer. Its expertise in managing Medicaid patients and achieving high quality and low costs is becoming an attractive asset as other large health systems and hospitals struggle to do the same.
“We think it’s rather unique to find a hospital that actually performs very well under Medicaid,” said Boutros. “With nearly 50% of our patients under Medicaid we have achieved quality improvements and costs savings that have resulted in significant population health incentives with insurance companies.”
As a political subdivision of Cuyahoga County, MetroHealth isn’t allowed to seek out a merger or an acquisition. That option would require a transformation of the corporate structure and Boutros doesn’t believe it’s necessary.
“We think we are at our peak,” he said. “We don’t need to settle and we don’t need to merge. We need to be able to partner with a like-minded health system.”
In May, the system sold roughly $900 million bond issue to fund a campus transformation, a deal that triggered three-notch downgrades from Fitch Ratings, Moody’s Investors Service, and S&P Global Ratings to Baa3 and BBB-minus. Moody’s downgraded the ratings on Cuyahoga County's sales tax revenue bonds to Aa2 from Aa1. Moody's cited “enterprise risk” related to the MetroHealth bonds.
“We already have all the capital that we need and don’t need any more and I think that actually makes us more attractive to health systems,” Boutros said.
The overhaul calls for construction of a new 12-story hospital building which will began in July, a 1200-1500 car parking garage and a central utility plant. Buildings will be demolished to make way for green space and internal roads, with additional plans to revitalize the West 25th Street corridor. Last week MetroHealth opened two new community hospitals.
Work will continue through 2023.
The board decided after repairs and rehabilitating facilities now 60 years old that it was now more affordable to make over the main campus than to continue with repairs.
The not-for-profit healthcare sector has been undergoing a wave of consolidation and mergers as the sector grapples with operating challenges and federal healthcare reforms.