Angel Hospital on the road to a merger with MissionWritten by Becky Johnson
Angel Medical Center in Franklin, one of the last, small independent hospitals in the state, is now part of Mission Health System in Asheville.
After months of negotiations, Angel last week came under Mission’s management umbrella — likely a temporary arrangement on the road to full merger. The move does not come as a surprise. Angel has had a close partnership with Mission for years.
Angel CEO Tim Hubbs equated the deal signed last week to getting engaged after years of dating.
“I would call it the engagement period. I think in short order we might say ‘Let’s go ahead and get married’ but we haven’t set that date yet,” Hubbs said.
Hubbs would not say what would trigger an acquisition by Mission, only that it would be based on certain outcomes being realized over an undisclosed length of time.
While the deal falls short of a full merger for now, most of the benefits of affiliation will be realized right away, Hubbs said.
The move will be financially advantageous for Angel. The hospital can get bulk rates on medical supplies, push for higher reimbursement from insurance companies and get better deals on equipment or contracts thanks to the buying power and leverage that comes with being part of a larger institution like Mission.
Mission already came to Angel’s aid on the monetary front two years ago, when the hospital was about to see its interest rate on some $14 million in debt jump substantially. The debt dates back to renovations and expansions over the years, Hubbs said.
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Faced with pressure from the national credit crisis, the bond holders reassessed Angel’s risk level and planned to adjust the interest rate accordingly. Mission stepped in a guaranteed the debt, akin to co-signing for a loan, and allowed Angel to keep its interest rates reasonable, Hubbs said.
Tapping new capital is not a reason for the affiliation, Hubbs said, although at some point that may be a possibility.
Small hospital challenges
A very costly undertaking for hospitals, and one that has driven other small, independent hospitals around the state to affiliate, is the transition to electronic medical records. The cost of computers and software to go from paper charts to integrated electronic patient records is astronomical, according to Janet Moore, the marketing director of Mission Hospital.
Moore said small rural hospitals have it tough these days. They usually have a high percentage of patients on Medicare and Medicaid, which pay less than private health insurance plans. There’s also a higher percentage of people who can’t pay and have to be written off.
“It leaves them in a real bind,” Moore said.
Mission can provide expertise in the increasingly complex world of hospital management. Picking the right medical code in the maze of billing bureaucracy can make a substantial difference on how much insurance companies or Medicare reimburses for a particular service.
Mission also has experts that can help Angel with best practices, from preventing falls to reducing infections among hospitalized patients, Moore said. It is not just a matter of patient safety, but Medicare and Medicaid won’t pay for infections or injuries picked up during a hospital stay.
“The federal government has said, ‘We are not paying for that anymore.’ They say, ‘That happens in your hospital you eat the cost,’” Moore said.
Another benefit: Angel can now lean on Mission’s reputation when recruiting doctors to locate in Franklin.
“I do think if you are recruiting a physician and you can be part of Mission’s system, it does feel differently for them than just a solo hospital,” Hubbs said.
That’s what inspired Transylvania County Hospital in Brevard to sign a management contract with Mission recently as well.
“What they are looking at is how do they continue to attract specialists and doctors to come there and live and work,” Moore said.
A few doctors affiliated with Mission already hold satellite office hours in Franklin, providing access to specialties otherwise not available in the community.
“We have been able to bring specialists and subspecialists to enhance what the community already has,” Moore said.
Despite fears to the contrary, Mission does not plan to siphon care out of Franklin and send patients to its flagship in Asheville.
“We’re looking forward to working more closely with Angel’s leaders, physicians and staff to help ensure the continued delivery of quality care close to home by this outstanding community hospital,” said Ron Paulus, CEO of Mission Health System.
The hospitals in Spruce Pine and McDowell County both saw both their revenue and the number of doctors practicing in their communities increase substantially following their mergers with Mission.
Angel has long partnered with Mission, both formally and informally. Angel serves as a western base for Mission’s emergency medical helicopter. The two recently embarked on a joint spine center.
Last year, Angel’s board made public that it was pursuing a formal affiliation with Mission. The terms of the contract signed by Angel’s board of directors last week are not being made public. Both institutions are private and not required to disclose details of the deal.
Hubbs would only say that the contract is long-term, longer than just a few years. The financial terms are private as well, such as the management fee Mission may be getting or benefits Angel expects in return.
Mission facing challenges
The deal comes amidst debate over Mission’s presence in the region. Detractors claim competition from Mission amounts to a monopoly and should be reined in. Supporters counter that Mission is merely trying to provide the region with access to the best health care possible.
State regulators are reviewing Mission’s anti-trust regulations to determine whether they should be tightened or loosened. Meanwhile, a bill has been introduced by Sen. Jim Davis, R-Franklin, that would bar Mission from expanding pending a state-commissioned study. If it passed before Angel inked a deal with Mission, it could have derailed it, but not now.
“There is nothing in the bill that would create an unwind situation,” Hubbs said.
The bill could still hurt Angel from realizing the full benefits of the affiliation. It aims to limit how many doctors Mission can employ, for example, undermining its ability to recruit new doctors to Franklin.
The loss of autonomy, whether perceived or actual, is a likely side-effect of a merger. Two other hospitals that have merged with Mission — namely McDowell County Hospital and Blue Ridge Regional Hospital in Spruce Pine — have preserved a balance of power, however.
The local hospitals kept their own board of directors, although some board members are now appointed by Mission. The local hospital board has hiring and firing authority over the CEO, but the CEO also reports directly to Mission. In essence, the CEO has two bosses. And if he got conflicting orders?
“That has never happened,” Moore said.
Moore said Mission has never expected the CEO to make decisions that benefit Mission to the detriment of the local hospital, thus it’s never been an issue.
That’s what Angel is counting on as well.
“The focus of this agreement is to maintain, enhance and increase access to health services here locally, while maintaining local input,” Hubbs said.
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