Merger of Baptist and St. Mary’s Hospitals in 2008

Baptist Hospital in 1971

Baptist Hospital on November 9, 1961 (News-Sentinel photo)

Baptist Hospital of East Tennessee

–Location: 137 Blount Ave.

–Acres: 23

–Buildings: 9 (1948 Baptist “A” Wing opens; 1956 Blount Professional Building opens providing doctors’ offices; 1967 “B” Wing, Community Education Building open; 1971 Baptist Professional Building opens; 1980 “C” Wing opens; 1980 Baptist Medical Inn acquired; 1986 Baptist Eye Institute opens; 1993 Baptist Medical Tower opens)

–Parking: 1,036 total spaces, 664 in one garage, 372 in four surface lots

St. Mary’s Medical Center

–Location: 900 E. Oak Hill Ave.

–Acres: 18.84

–Buildings: 11 (1930 St. Mary’s opens with 75 beds and 33 private rooms, general surgery suites and maternity ward; 1939 East Wing opens for a total of 125 beds; 1948 West Wing opens bringing bed total to 300; 1972 Magdalene Clarke Tower opens; 1980 Central Wing, Professional Office Building and garage open; 1989 Women’s Pavilion opens; 1995 Central Wing Annex is completed with out-patient service areas; 1999 Ambulatory Surgery Center opens)

–Parking: 1,541 total spaces, 943 in two garages, 598 in three surface lots

Whisperings of an impending announcement had been making their way through the floors of Baptist Hospital of East Tennessee on March 10.

Within 24 hours, physicians and staff were hit with the news that Mercy Health Partners planned to consolidate Baptist and St. Mary’s Medical Center, two of Knoxville’s oldest hospitals, into a new, state-of-the-art facility that would be built somewhere downtown within three to five years.

In the meantime, all in-patient services at Baptist’s flagship campus on Blount Avenue would be moved by Aug. 1 to one of three other hospitals now under Mercy Health Partners, the company formed when Baptist and St. Mary’s merged less than three months ago.

Some longtime Baptist employees felt betrayed by the news. Others, saddened, said they were “grieving.”

Physicians, who had been pressuring Mercy CEO Debra London to hurry up and make a decision about the hospitals’ future, suddenly found themselves asking, “What’s the rush?”

Under the gun to meet tough financial benchmarks, Mercy Health Partners is forging ahead with the help of independent consultant Health Care Futures. The goal will be to continue reducing duplication of services and to find efficiencies within the system.

It’s a process that hospital officials acknowledge will likely cause some anguish in the short term but one that will result in a long-term investment for the community.

“It’s definitely a period of transition,” said Jeff Ashin, CEO of Mercy’s metro division. “It’s taking us to a much different place, but a place we need to be to meet the needs of our community going forward. It’s just something that has to be done.”

Moving Baptist

Potential layoffs and job reassignments are among the core concerns of Baptist employees working at the Blount Avenue hospital.

While there are no specific numbers yet on how many employees will be impacted, Ashin said it was unlikely – given a national shortage of nurses – that bedside caregivers would be affected. At Baptist’s downtown facility alone, the use of contract labor is at 40 percent.

“Common sense says there are going to be job losses. To what extent, we don’t know. We absolutely want to minimize it,” he said, noting that transition and retraining services would be provided.

Others, he said, are concerned with, “Well, I’ll have a job, but if I work days now, does that mean I have to work nights somewhere else?” and “How’s seniority going to work?” Those issues are also still being worked out. Employees at Mercy’s other hospitals aren’t expected to be impacted by the recent announcement, though they could be in the future as the system further consolidates.

Ashin said most of the longer-term Baptist employees he and other Mercy officials have spoken with have indicated a desire to stay within the system because “they have a lot invested at Baptist.” But others, Ashin admits, have said, “I’m outta here.”

“There’s been a tremendous amount of emotion on all levels, whether it’s anger or sorrow or loss, and it seems to be definitely the longer you’ve been here, the more your depth of loss, obviously,” Ashin said.

One of the biggest challenges has been trying to dispel rumors at a time when Mercy officials say they don’t know enough to share.

While they understand the uncertainty people are feeling, Ashin said the last thing they want to do is tell people things and then change it three times. That would do more harm than good.

“My concern is we’ve told people everything we know thus far, and I know it’s hard for people to believe that, but what’s disturbing to me is that some people are much more prone to listen to their colleagues who are making stuff up, and that is very harmful,” he said. “In the absence of information, I suppose people do fill in the gaps. That’s why it’s so important that we get vital information out to people. Now, whether people believe it is a totally different issue.”

As for physicians, Ashin acknowledged their business life has been “turned around a little bit.” Some have contracts and others have leases, but Mercy is working with them to prevent any negative repercussions.

“We understand that we’ve kind of thrown them in this turmoil at this point, and we need to work with them to help them resolve it. We want them to come back when the new hospital is built,” he said.

Most physicians Ashin has spoken with have expressed interest in staying within the system. Those at Baptist’s downtown hospital are talking more about going to the West campus. Others whose specialty doesn’t have a significant presence at Baptist are talking about spending more time at St. Mary’s.

Physicians and patients, he said, will benefit as a result of greater efficiencies created by having one centralized location for services.

For instance, Baptist does about 450 heart procedures a year while St. Mary’s does about 250. By combining them, he said there will be between 600-700 in one location, and that creates a level of competency and compatibility within the program.

“You create not only economies from a financial standpoint, but you create an environment where the more you do the higher level of quality, the more skilled, the more competency is maintained,” he said.

Knox County Commissioner Richard Briggs, a surgeon with East Tennessee Cardiovascular Surgery Group, which plans to move its Baptist doctors to St. Mary’s main campus off Woodland Avenue atop Oak Hill, agreed.

“By consolidating services, we can offer some things that we can’t separately,” Briggs said. “In our group, we’re looking forward to it. Because of the consolidation, if I’m tied up, one of my associates can step in. It’s just a lot simpler.”

While there have been some mixed messages about what would ultimately happen, Briggs said, “Baptist has had financial difficulties for some time. I think some people were looking for hope when there wasn’t any.”

Where to move?

The need to consolidate services and facilities in downtown Knoxville has long been discussed as a way to achieve economies of scale in a competitive health care market deemed oversaturated with providers.

It was the only reason the merger between Baptist and St. Mary’s made sense, said Curt Whelan, managing director for Wellspring Partners, the Chicago-based consulting firm hired by Baptist in February 2007 to help turn its finances around.

A number of factors went into deciding whether to consolidate services from Baptist to St. Mary’s or vice versa, hospital officials said.

Reams of data on everything from patient demographics and service use to necessary facility upgrades and forecasted population growth trends were taken into consideration.

In the end, Baptist didn’t have the capacity needed to handle the additional patients and services. And it would have cost millions of dollars just to get the aging hospital’s main medical tower ready for active care, Whelan said.

“They looked at Baptist. They looked at it hard,” Whelan said. “They’re doing the right thing. It’s painful for a lot of people. That place is a home to a lot of people. There is a high level of skepticism that there are no plans to come back, but that’s really not the case. It’s going to be a political and emotional challenge rather than a physical one.”

Mercy’s success, he said, will be determined by how quickly, efficiently and painlessly as possible it can implement the changes.

Meanwhile, hospital officials are already planning necessary capital expenditures to make it happen.

A $13.2 million ambulatory surgery treatment center and medical office building is planned adjacent to Baptist Hospital for Women in West Knoxville’s Turkey Creek complex. A new medical office building is under construction at St. Mary’s Medical Center North, where Mercy also is finishing another operating room that had been shelled in. New cardiac catherization labs also will be built at St. Mary’s downtown hospital.

London has said St. Mary’s 78-year-old flagship hospital in Old North Knoxville would eventually close, with services moving to the new hospital. The site was never really considered for a new hospital because it’s landlocked and in the middle of a neighborhood.

It’s unclear what the future holds for that campus. There has been no in-depth discussion about what its future uses could be, but Ashin said it would be something that is compatible with the community.

He said there has been talk about using the site or part of it for low-income housing or for sub-acute or psychiatric services.

James Pierce, president of the Old North Knoxville Neighborhood Association Inc., said he was “very concerned” about the future of the hospital but “everything is wait and see.”

“We hope they would negotiate with someone to come into those buildings soon after it closes. I would hate to have it sit empty for a long time and further degrade issues in the neighborhood,” he said.

Pierce, who used to live in Memphis, saw three of that city’s four hospitals located downtown close.

“Now, we’re facing the same situation. We, the central area of Knoxville, have more people coming here and downtown to live. Where are we supposed to go to get our care?” he said.

Briggs, president-elect of the Knoxville Medical Association and who practices at St. Mary’s, cautioned those who would make too much too soon of the hospital’s future, saying plans to build a new hospital are “just plans.”

“It’s not clear when, where and if that will come to fruition,” he said. “Three to five years is a long time. We’ll probably get situated and make plans to be at St. Mary’s for that time or even longer,” Briggs said.

A new downtown hospital

If a new hospital is built, it could have between 300 to 400 beds. With construction costs estimated at $1 million per bed, the overall price tag could top $400 million by the time Mercy builds the facility and equips it, Ashin said.

In order to move forward with those plans, Mercy will have to financially perform this year. That means it will have to eliminate a pattern of losses within the entire health care system, which has a total bond indebtedness of $350 million.

For 2008, Mercy is budgeted at a break-even point, which Ashin acknowledged will be “no small task.” Last year, Baptist’s losses totaled around $30 million.

Initiatives put in place by Wellspring Partners helped Baptist on its way to financial recovery, but those alone are not enough, Ashin said.

“Even putting all those initiatives in place and still trying to run two large downtown hospitals with duplicative services and trying to feed the infrastructure of both would maybe have taken half away at best,” he said. “There is still a lot that has to be done.”

But if Mercy can logistically pull off the consolidation of Baptist’s in-patient services while maintaining three-quarters of the business, Whelan said the savings potential could equal tens of millions of dollars.

The likelihood of that happening, he added, is “very viable.”

To meet its fiduciary responsibilities, Ashin said Mercy must know the value of Baptist’s Blount Avenue property, which is in the heart of the city’s waterfront redevelopment project and has been identified as “the most desirable site” so far for the new hospital.

Mercy has hired national appraisal firm Marcus and Millichap to assess the site’s value, which could be determined within 30 days.

Mercy is not actively looking for property for a new hospital, though Ashin said it has received “a lot of solicitations from people.”

The primary site being considered is at the Baptist Hospital of East Tennessee campus, where a phased replacement plan would be implemented with the hope of having a new facility by 2013. Another undisclosed site in downtown Knoxville is also being considered, though Mercy officials won’t elaborate because of “confidentiality constraints.”

Whelan said the odds that Mercy would pursue the other location are “remote,” though officials are “very excited about its potential.”

“It’s basically like Switzerland. It’s a neutral territory, a place to aggregate both cultures and not fight over, ‘This is your home not mine,’ ” Whelan said.

But timing isn’t on their side, he added.

The weakened economy could make the Baptist site a hard sell. Mercy, however, is “going to test the market to see if someone is so interested that they make an offer (Mercy) couldn’t refuse.”

It would take about seven years to build a new hospital on Baptist’s downtown site. But by moving in-patient services out, Mercy will be able to expedite the hospital’s replacement, cutting the schedule in half because it won’t have to deal with ongoing 24-hour patient care, Whelan said.

Under a multi-year phased replacement plan that Whelan spearheaded, buildings would be taken down working west to east.

The buildings on the west side – including the original hospital tower and the Blount Building – are older and of poorer quality. Progressing east, the state of buildings is improved and the ability to reuse them is greater.

Whelan, who has worked with health systems from Alaska to Florida to New York, called the Baptist site one of the Top 10 potential locations for a new hospital in the country.

“It’s placement on the skyline is like a billboard,” he said. “I love that site.”

Others locations, he said, are buried in residential or high-density areas. Baptist overlooks Fort Loudoun Lake and the University of Tennessee football stadium.

Though Baptist is the center of the city’s waterfront redevelopment area, Whelan said there is a lot of inherent cost that comes with the property.

But no matter where Mercy decides to go, the potential development on the site will be a win-win for the city.

“If the city can get that land back on the tax rolls, I’m sure the mayor would like that,” Whelan said.

Rich in tradition

David Jimenez, chief operating officer of Mercy’s parent company, Cincinnati-based Catholic Healthcare Partners, called the opportunity to bring together two health systems rich in history and tradition “too good to pass up.”

Jimenez described Knoxville as a highly competitive health care market with too much capacity, which is one reason why there is a need to consolidate. It’s also viewed as a low-reimbursement market because of TennCare, the state’s expanded Medicaid program. But St. Mary’s, he said, has consistently performed well and “we trust them to make the right decisions.”

“Our strategy is to grow where we already have a footprint,” Jimenez said.

Last year, CHP, which primarily serves as the largest health care delivery system in Ohio and also has a presence in Tennessee, Indiana and Pennsylvania, opened two new hospitals, including St. Mary’s Medical Center North on Emory Road. It also OK’d the merger with Baptist and had several other capital projects completed.

Mercy competitors Covenant Health and University of Tennessee Medical Center have also been investing in their facilities.

Covenant Health spokesman Max Shell said Covenant has in recent years made “substantial investment” in in-patient and emergency services across the system, including at Fort Sanders Regional, where the first phase of an ongoing expansion project has already been completed.

“We have sufficient capacity at all of our hospitals to absorb any additional emergency room patients and admissions,” Shell said in a statement, noting that Covenant Health has had inquiries from Baptist employees regarding employment.

Joe Landsman, president and CEO of University Health System, which owns and operates the UT Medical Center, said he expects to see some shift in patients choosing to receive their health care services at UT Medical Center as a result of Mercy’s decision.

UT Medical Center embarked on a multi-year, $60 million renovation and expansion project last year as a result of an already increasing patient volume.

“We’ve been growing for quite a while. We’ve been expanding our services and facilities to be able to continue to provide for patients who choose to get their care at UT Medical Center,” Landsman said.

UT Medical Center expects to open a 28-bed, multi-speciality [sic] acute-care in-patient unit by mid-year as well as a $26 million new wing that will house a cardiovascular intensive care unit.

Ashin, who moved to Knoxville from Ohio in January to oversee Mercy’s metro hospitals, acknowledged that patients have a lot of choices in the greater Knoxville market and East Tennessee.

He called the available health care resources “pretty extraordinary” for a population the size of Knoxville, which CHP sees as “a very vital and viable market.”

“There’s a lot of attention being paid to this market right now by CHP, a lot of resources being brought to bear to assist this organization going forward,” Ashin said. “So, I think this is seen as a vital cog in the wheel for the entire organization.”

Source: — March 23, 2008

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