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Mercy and Central Iowa Health extend talks


Focus turns to Washington

Top executives at Iowa’s two biggest hospital groups have agreed to extend their talks about jointly building a hospital in West Des Moines for at least 30 days and said their next hurdle will be selling the plan to federal antitrust regulators.

Eric Crowell, chief executive of Central Iowa Health System, and David Vellinga, his counterpart at Mercy Medical Center, said they had overcome significant stumbling blocks to the project, including several aspects of how the facility would be managed, during six months of discussions.

“We are close to having a business model for development that makes good sense for us,” Vellinga said. “Now we’re moving into the legal model and making sure it makes sense to other folks as well.”

The announcement is either a sign that the two hospital groups are making enough progress that they find value in spending more time on the issue or a signal that they feel enough pressure from the community to exhaust all options before calling it quits. Most likely, it is a mixture of both.

Both Crowell and Vellinga, who conduct all interviews regarding the proposed hospital together, characterized the discussions held so far as “cordial” and “productive.”

“We’re very serious about working together to find a way to make collaboration work,” Vellinga said.

So far, the size of the teams working on the issue has been kept very small. Just three executives from each hospital group, including Crowell and Vellinga, have been meeting at least once a month. That pace will increase over the next month, they said.

They have also hired outside consultants, Kurt Salmon Associates, to help. Antitrust lawyers hired by each hospital group have also been present at meetings.

Meantime, CIHS’s application for a state license to build a West Des Moines hospital on its own remains with state regulators. Barb Nervig, who heads the state’s certificate of need program, said the application would remain valid for the next several months.

Despite their optimism, Vellinga and Crowell said obstacles remain that may prove insurmountable. Combined, the two hospital groups provide health care to at least half of Iowa’s residents. Antitrust concerns killed earlier talks to build a joint facility. In addition, there are very few precedents that the two can use to guide them.

In fact, one collaborative effort that Vellinga and Crowell have studied, Morton Plant Hospital Association and Mease Hospital in Clearwater, Fla., had some troubling bumps two years ago.

  Morton Plant and Mease entered into an agreement in 1994 to jointly produce certain outpatient and administrative services, such as employee benefits. In 2000, they admitted to violating certain parts of the agreement, including sharing competitive information, and were fined an assessed civil fine of $300,000 by the U.S. Justice Department.

“That wasn’t good news to us,” Crowell said.

For the next month, Crowell and Vellinga, along with executives at their hospitals and consultants, will be working on how to package their plan in a way that will be acceptable to federal antitrust regulators. They want to get as many details worked out about how the jointly operated hospital would work before going to Washington, they said.

“We remain pretty pessimistic that they’re going to buy this,” Crowell said of authorities at the U.S. Department of Justice.

Still, Crowell said that collaboration efforts between the two are far stronger this time than they were before.

Building a hospital together makes sense for several reasons.

CIHS and Mercy have a history of collaboration. The two groups work together on the Laser Eye Center of Iowa, the Central Iowa Transplant Association and the Kidney Stone Center of Iowa.

The other, perhaps larger, issue is cost. Two hospitals in West Des Moines would obviously be more expensive than one.

And though health-care costs have been rising, Crowell and Vellinga said that expenses related to buildings and equipment represent about 7 percent of the increases. Instead, they said that an aging population that requires more services, the increasing use of prescription drugs and expensive new medical technologies are the main reasons for higher health-care costs.

Both Crowell and Vellinga said community interest is what’s pushing them together now.

“It was our two boards, and representatives from the community, that brought us back to the table,” Crowell said.

Timeline of courtship

In December 2001, discussions between Central Iowa Health System and Mercy Medical Center about building a hospital in West Des Moines were broken off by CIHS, largely because of concerns that such a project wouldn’t pass muster with antitrust officials.

CIHS, led by Chief Executive Eric Crowell, proposed plans to build its own $78 million, 83-bed hospital.

Three months later, Mercy’s David Vellinga announced plans to buy the financially troubled Metropolitan Medical Center. Later, he said his hospital group was considering building a hospital across the street from CIHS’s proposed facility, as well as building a health-care facility in Ankeny.

On Aug. 16, CIHS put its application for a state license to build the hospital on hold. That day, CIHS executives said they would spend the next six months working with Mercy to figure out how a West Des Moines hospital could be build and operated jointly by the two organizations.

As the six-month deadline expired, the two health-care groups said last week they would work on the joint hospital idea for at least 30 more days.   

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