While many hospital system mergers derailed after the two- and three-year mark, Alegent Health recently celebrated the five-year anniversary of its joint operating agreement, aided by its aggressive expansion in the Omaha, Neb., market.
Sponsored by Catholic Health Initiatives and an affiliate of the Nebraska Synod of the Evangelical Lutheran Church in America, Alegent was formed with the consolidation of operations at Omaha-based Bergan Mercy Health System and Immanuel Health Systems. The two hospitals began through a joint venture in 1991, and in 1996 Alegent was created through a joint operating agreement, with each sponsoring organization contributing members to one board of directors and a single management team, said Robert Azar, Alegent's vice president of business development.
``We act like a merger, but we are still operating under a (joint operating agreement),'' Alegent spokeswoman Amy Protexter said.
Alegent's experience illustrates how a locally operated enterprise, Immanuel, was able to blend its business strategies with a large national system, CHI, that brought different resources to the table. The resulting system, which has allowed each sponsor to maintain its religious identity and faith-based ministry, wields a combined market share that has taken advantage of a growing population to spread its reach across the Omaha market.
Alegent, which controlled about 37% of the Omaha metro area market in both 2000 and 2001, is now composed of seven acute-care hospitals: 532-bed Bergan Mercy Medical Center and 539-bed Immanuel Medical Center in Omaha; 209-bed Mercy Hospital, Council Bluffs, Iowa; 142-bed Midlands Community Hospital, Papillion, Neb.; 47-bed Memorial Hospital, Schuyler, Neb.; 25-bed Community Memorial Hospital, Missouri Valley, Iowa; and 20-bed Mercy Hospital, Corning, Iowa.
Through its network, Alegent has emerged as one of the three dominant providers in the Omaha/Council Bluffs metropolitan area, competing for market share with Nebraska Health System and Methodist Health System, also not-for-profit providers. Nebraska Health, formed in 1998 by the merger of 204-bed Bishop Clarkson Memorial Hospital and 302-bed University of Nebraska Medical Center, controls roughly 25% of the Omaha market, while two-hospital Methodist Health controls roughly 28%, officials at both systems said. Alegent also has a joint venture with 278-bed St. Joseph Hospital, owned by Tenet Healthcare Corp., which holds roughly an 11% market share.
To meet its hospitals' inpatient admission rates, which rose 21% to 36,366 in 2001 from 29,951 in 1997, Alegent is undertaking a systemwide overhaul of its facilities. Officials announced a $28 million, two-year expansion and renovation at Immanuel Medical Center in May 2001, and a $54.1 million renovation and expansion of Bergan Mercy Medical Center is expected to be complete in 2006. Midlands Community Hospital, which joined Alegent in 1999 and saw the population of its main service area in Papillion increase 18.6% from 1990 to 2000, is undergoing a $9.1 million project to expand its emergency room. Alegent will break ground in March on a $70 million project to convert its outpatient Lakeside HealthPark, based in western Omaha, to a full-service acute-care hospital by 2005. In November 2001, Alegent signed a management contract with 27-bed Memorial Community Hospital and Health System, Blair, Neb., and gave it a cash infusion of $1 million to help finance a $13.5 million renovation of the facility.
Alegent's revenue and operating margins are growing along with its infrastructure. In fiscal 2000, the system earned operating income of $13 million on $503 million in revenue, a 2.7% operating margin. The operating margin increased to 3.5% in fiscal 2001, with an operating profit of $19 million on $555 million in revenue. Projected net revenue for 2002 is $585 million.
Competitor Nebraska Health System earned $7.3 million on $393 million in operating revenue in fiscal 2001, while neighboring Methodist Health System earned $1 million on $398 million in operating revenue, a decrease from $10 million earned on operating revenue of $390 million in fiscal 2000. Methodist's vice president of finance, Ray Stoupa, attributed the decline in part to losses on Methodist's 92-bed Richard Young Center, which provides mental health services.
Alegent officials would not provide financial figures for the Bergan and Immanuel systems before the joint operating agreement, but Alegent's chief executive officer, Charles Marr, who was formerly CEO of Immanuel Health System, said Alegent is in a stronger financial situation now than when the organizations were separate.
Both Marr and Azar said the primary reason Bergan and Immanuel declined to pursue a full-asset merger was to allow each sponsoring organization to retain its religious identity and faith-based ministries.
``They've been very good at positioning themselves in terms of having very friendly consumer facilities,'' said Martin Beerman, spokesman for Omaha-based competitor Nebraska Health System.
``In looking at some of the systems that have not been as successful or that have disintegrated over time, one of the common threads is that many created a consolidated structure and overlaid it on top of the existing organizations' structure,'' Alegent President Richard Hachten said. ``Over time they felt they would deal with the issues of governance and management and so forth, but those issues just never get dealt with. It's far more difficult after the organization has come together.''
