ELKTON — Union Hospital announced Thursday that it has signed a letter of intent to merge with Delaware-based Christiana Care Health System, a longtime neighboring competitor and one-time partner.
The parent organizations have now entered a period of exclusive negotiation and due diligence, expected to take several months. If a final affiliation agreement is reached, an additional period of several months will be required for regulatory approvals from Maryland.
On Thursday, Union Hospital officials said that both entities had agreed to not conduct interviews at this time, but in a press release announcing the move, Union Hospital President and CEO Dr. Richard Szumel called the decision “an exciting opportunity for Union Hospital, our employees, our providers and our community.”
“As an organization we continually strive to position ourselves for health care delivery of the future to meet the needs of our community for years to come,” he said. “If a final agreement can be reached to become a part of the Christiana Care Health System, we would be joining one of the premier, forward-thinking health systems in the country, allowing us to further our mission of improving the health and well-being of our communities.”
Meanwhile, Christiana Care President and CEO Dr. Janice E. Nevin noted the close relationship between the two organizations.
For about 20 years, Christiana Care operated an oncology unit in Elkton in partnership with Union. In 2016, it closed the unit as the Radiation Oncology Center in Elkton opened. In dedicating the new facility, Szumel told attendees that Christiana was owed “a debt of gratitude for what they’ve done for us up to this point,” making the new center possible.
“Christiana Care and Union Hospital have been serving the people of Cecil County as neighbors for many years,” Nevin said Thursday in a prepared statement. “We welcome this opportunity to explore a closer relationship with an organization that shares our commitment to value and service to the community. As always, our primary goal is to make a positive impact on the health of the communities we serve.”
Cecil County Executive Alan McCarthy said he learned of the announcement Wednesday night, but did not have much inside knowledge on the proposal other that what was publicly announced.
"I hope that they work closely together to provide better medical care for the citizens of Cecil County," he told the Whig. "I think it would be advantageous to work out some kind of relationship with Christiana so close by."
McCarthy said he could sympathize with Union's desire to merge with a larger health care system, as the costs of health care seem to rise endlessly.
"I really believe that community hospitals should remain focused on their communities," he said. "But I also recognize that to get world-class specialized care and treatment means that you'll have to go somewhere with the economy of scale to support it."
The announcement continues a rollercoaster year for Union Hospital, which saw a previous planned merger with Baltimore-based LifeBridge Health fall apart in December after a year of negotiations. Just a few weeks later, Union announced that it was laying off more than 30 employees, many of whom were senior management-level staff.
In January, Union Hospital listed a five-member executive team, including Szumel, and 30 directors on its website staff directory. Today, there are seven members of the executive team, including Szumel, and 23 directors listed.
In both situations, Union leadership said the uncertain financial future of the organization was a contributing factor. In announcing the layoffs, Szumel told the Whig that they were necessary to “right-size our organization” and said Union needed “to do a better job with expense management.”
In recognizing that, hospital leadership and its board of directors reportedly devised a revitalization plan. Last year, Union Board of Directors Chairman Raymond “Chick” Hamm told the Whig that the hospital had been exploring potential mergers for many years.
Now the 110-year-old county hospital is once again heading toward shedding its lifelong independence in hopes of a stronger financial future.
Christiana Care, which breaks its organization into several tax-exempt organizations, produced a net revenue of $281 million in Fiscal Year 2016, according to publicly available audits. The organization as a whole held $2.3 billion in net assets that same year.
On the other hand, Union Hospital has endured a rough stretch over the last few years, and produced a net revenue loss of $9.6 million in Fiscal Year 2018, according to Maryland state audit records. It still holds $77.1 million in total net assets though, as of the most recently available audit.
Christiana Care’s system includes two hospitals — Christiana Hospital near Newark, about 10 miles from downtown Elkton, and Wilmington Hospital in that city — with a total of 1,227 beds, a Level I trauma center, a Level III neonatal intensive care unit, a comprehensive stroke center and regional centers of excellence in heart and vascular care, cancer care and women’s health. It also includes an extensive network of outpatient services, home health care and medical aid units, including a freestanding emergency department in Middletown, Del., less than 5 miles from Cecil County's southern border.
In comparison, Union Hospital is a full-service community hospital with 72 beds and provides an assortment of specialty care, including oncology, gastroenterology and audiology, along with imaging and laboratory services. It also operates urgent care units in Elkton and Perryville.
Union has been known to partner with other health care systems to deliver specialties locally in recent years, including with Nemours/Alfred I. duPont Hospital for Children for pediatrics and University of Maryland Medical System for oncology — the latter of which will conclude its staffing agreement on June 30 under a previously agreed-upon plan.
When asked Thursday about the immediate future of Union Hospital's Radiation Oncology Center staffing, hospital officials reported that they signed an agreement earlier this year with Radiation Oncologists, PA and Christiana Care’s Helen F. Graham Cancer Center & Research Institute to provide radiation oncology services at Union Hospital starting in August.
During the transition period in July, however, patients will have to receive radiation treatment at either the Graham Cancer Center in Newark, Del., or the Kaufman Cancer Center in Bel Air.
It is unclear what would happen to the Nemous partnership under the merger plan, although with the breadth of Christiana Care’s available services it would likely take over their operation.
The news of a new merger attempt comes about six months after Union Hospital and LifeBridge Health called off their attempt after about a year of due diligence.
The merger was scuttled when the Maryland Health Services Cost Review Commission (HSCRC) began a review of Union Hospital’s total cost of care, which has led to uncertainty about future revenue.
For decades, Maryland operated the nation’s only all-payer hospital rate regulation system, overseen by the HSCRC, which is allowed under a decades-old Medicare waiver from the federal system. Under the state’s waiver, all third-party payers — Medicare, Medicaid or private insurance — pay the same rate.
A new 10-year state Medicare waiver passed in 2014, split into five-year blocks, has been updating the state’s regulation and reimbursement system with the Global Budget Revenue (GBR) model.
According to the HSCRC, the GBR model is a revenue constraint and quality improvement system that aims to provide hospitals with strong financial incentives to manage their resources efficiently and effectively, in order to slow the rate of increase in health care costs and improve health care delivery processes and outcomes.
While the model notably seeks to dissuade hospitals from running up services for fees by placing an annual cap on revenues, in Union Hospital’s case it is having a different effect. As a low-volume, high-cost provider, HSCRC regulators were reportedly reviewing whether to reduce the hospital’s reimbursement rate.
Since then, Union leaders have been actively negotiating the hospital’s rates with regulators and have begun working on ways to increase patient volume, including recruiting more surgeons and physicians, and working to shore up community referrals from private practices, Szumel said.
“All health care systems have to adapt to the new environment and small community hospitals are sometimes slower to change, but we have the opportunity now … to make sure that we can meet our mission,” Szumel told the Whig in January.