Maryland’s Peninsula Regional Health System kicked off the new year by sealing the deal on its affiliation with Nanticoke Health Services just across the border in Delaware.
The deal, which makes PRHS the sole corporate member of Nanticoke, comes almost a year after the single-hospital systems signed their letter of intent in January 2019. PRHS now includes 288-bed Peninsula Regional Medical Center at its headquarters in Salisbury, Maryland, and Nanticoke Memorial Hospital, a 139-bed hospital roughly 22 miles away in Seaford, Delaware. The hospitals will keep their names, and leaders plan to announce a new system name in the spring.
Nanticoke started looking for a partner about two years ago amid lower reimbursement from payers like Medicare and Medicaid, said Penny Short, president of Nanticoke Memorial Hospital. The problems started in 2014, when a CMS rule change lowered its Medicare reimbursement rate.
“As we started looking at a partner, someone that had a strategy for a regional approach really was of interest, and we certainly saw that our community could benefit from partnering with them,” Short said.
Steve Rose, the CEO of Nanticoke Health Services, will retire at the end of the month, Short said.
PRHS still has yet to cross the finish line on an earlier deal for which it signed a letter of intent in July 2018 and originally expected to close in July 2019, pending approval from the Maryland Health Care Commission. The deal would make PRHS the sole corporate member of the McCready Foundation, which operates a 2-bed hospital in Crisfield, Maryland, in addition to a skilled nursing facility, assisted living facility and immediate care facility.
That deal is taking longer because it involves essentially closing the hospital, said PRHS CEO Steve Leonard. Once it assumes ownership, PRHS plans to transition the hospital into a freestanding medical facility at its current location. PRHS eventually plans to relocate those services to a new forthcoming facility on property east of Crisfield. Design and construction will take up to 2 years.
Leonard said he now expects to finalize the McCready deal on March 1.
“It’s not to say there were significant barriers or anything like that, it just takes longer when you’re having that kind of conversation, I think,” he said.
McCready Hospital in Crisfield has lost money in each of the past three years, data from Modern Healthcare Metrics show. The hospital lost about $744,000 on $17.4 million in revenue in 2018.
Nanticoke Memorial Hospital, on the other hand, generated a 7.7% operating margin last year: $11 million in operating income on $143.2 million in revenue, Metrics data show. The hospital has generated above-average operating margins for years.
A big driver behind the PRHS-Nanticoke affiliation is the ability to recruit and retain physicians. Nanticoke’s Short said being part of a larger system is more attractive to physicians coming from outside the area. The system now has about 220 employed providers.
Under the deal, PRHS has committed to spending $50 million on capital expenditures to Nanticoke facilities over the next seven years.
That deal, too, took longer than expected. Leaders originally expected it to close in October 2019. Leonard chalked up the overly ambitious timetable to the fact that the team has limited experience with the state and federal regulatory approval process. That deal required approval from the state of Delaware and the Federal Trade Commission.
“Those approvals ultimately took a few months longer than I think any of us expected, mainly at the federal level,” Leonard said.